INSURANCE AND RISK MANAGMENT UNIT THREE – CHAPTER 13 – LESSON ONE.
Chapter 8: An Introduction to Insurance and Risk Management Chapter 8 An Introduction to Insurance...
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Chapter 8: An Introducti on to Insurance and Risk Management Chapter 8 An Introduction to Insurance and Risk Management
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Transcript of Chapter 8: An Introduction to Insurance and Risk Management Chapter 8 An Introduction to Insurance...
Chapter 8: An Introduction to Insurance and Risk Management
Chapter 8
An Introduction to Insurance and Risk Management
Chapter 8: An Introduction to Insurance and Risk Management
2005 Kaplan Financial
2
What is Risk?
The chance of loss There must be a chance of loss for
risk to exist.
Chapter 8: An Introduction to Insurance and Risk Management
2005 Kaplan Financial
3
Risk Defined
Chance/possibility of loss Uncertainty Variation of actual from expected
results
Chapter 8: An Introduction to Insurance and Risk Management
2005 Kaplan Financial
4
Understanding Risk
Pure vs. Speculative Dynamic vs. Static Subjective vs. Objective Particular vs. Fundamental Financial vs. Nonfinancial Probability of Loss Law of Large Numbers
Chapter 8: An Introduction to Insurance and Risk Management
2005 Kaplan Financial
5
Responses to Pure Risk
Risk avoidance Risk reduction Risk retention or assumption Risk transfer
Chapter 8: An Introduction to Insurance and Risk Management
2005 Kaplan Financial
6
Causes of Insured Losses
Perils Hazards
Physical hazard Moral hazard Morale hazard
Adverse Selection
Chapter 8: An Introduction to Insurance and Risk Management
2005 Kaplan Financial
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Insurable Losses
Insurance vs. Gambling Requisites for an Insurable Risk
Large Number of Exposure Units Must Exist
Insured Losses Must Be: Accidental from Insured’s Standpoint Measurable and Determinable
Losses Must Not Pose Catastrophic Risk for Insurer
Chapter 8: An Introduction to Insurance and Risk Management
2005 Kaplan Financial
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Elements of a Valid Contract
Offer and Acceptance Legal Competency of all Parties Legal Consideration Lawful Purpose
Chapter 8: An Introduction to Insurance and Risk Management
2005 Kaplan Financial
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Legal Principles of the Insurance Contract
The Principle of Indemnity Subrogation Clause
The Principle of Insurable Interest The Principle of Utmost Good
Faith Warranty Representation Concealment
Chapter 8: An Introduction to Insurance and Risk Management
2005 Kaplan Financial
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Distinguishing Characteristics of Insurance Contracts
Adhesion (Take it or Leave it) Aleatory (Unequal Money
Exchange) Unilateral (Only One Promise,
Made By Insurer) Conditional (Conditioned on Paying
the Premium)
Chapter 8: An Introduction to Insurance and Risk Management
2005 Kaplan Financial
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The Law of Agency
Agents & Brokers Agency Relationships
Express authority Implied authority Apparent authority
Chapter 8: An Introduction to Insurance and Risk Management
2005 Kaplan Financial
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Important Features of Insurance Contracts
Exclusions Riders and Endorsements Valuation of Insured Losses
Replacement Cost Actual Cash Value (ACV) Agreed-upon Value Deductibles and Copayments
Coinsurance
Chapter 8: An Introduction to Insurance and Risk Management
2005 Kaplan Financial
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Individual Loss Exposures and Insurance Coverages
Perils that Can Reduce and/or Eliminate the Ability to Earn Income Dying too soon Living too long Disability
Perils that Can Destroy or Deplete Existing Assets Damage to property Legal liability for injuries inflicted upon others
Chapter 8: An Introduction to Insurance and Risk Management
2005 Kaplan Financial
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Selecting an Insurance Company
Rating agencies A. M. Best’s Fitch Moody’s Standard and Poor’s Weiss
NAIC Criteria
Chapter 8: An Introduction to Insurance and Risk Management
2005 Kaplan Financial
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Characteristics of Insurance Companies
Type of Ownership Capital Stock Insurance Mutual Insurance
Insurance Underwriting Reinsurance Federal & State Regulation
Chapter 8: An Introduction to Insurance and Risk Management
2005 Kaplan Financial
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The Risk Management Process
Determining the objectives of the risk management program
Identifying the risk exposure Evaluating identified risks as to the
probability of outcome and potential loss
Chapter 8: An Introduction to Insurance and Risk Management
2005 Kaplan Financial
17
The Risk Management Process (cont.)
Determining and selecting the best risk management alternative Risk Avoidance Loss Control Risk Retention or Assumption Risk Transfer
Implementing a risk management plan based on selected alternatives
Periodically evaluating and reviewing the risk management program
