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    Ic01 1

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    Htet Lynn Htun
    This document discusses risk management techniques. It begins by defining key risk management terms like peril, hazard, and risk. It then categorizes different types of risks such as catastrophic risks, financial risks, pure risks, and speculative risks. The document also differentiates between dynamic and static risks, as well as fundamental and particular risks. Finally, it outlines the steps in risk management, including risk identification, analysis, elimination, and reduction. It provides examples of loss reduction methods like separation, duplication, and diversification. The overall purpose is to help understand the concept of risk management and various approaches and techniques used.

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    Ic01 1

    Uploaded by

    Htet Lynn Htun
    36 views16 pages
    This document discusses risk management techniques. It begins by defining key risk management terms like peril, hazard, and risk. It then categorizes different types of risks such as catastrophic risks, financial risks, pure risks, and speculative risks. The document also differentiates between dynamic and static risks, as well as fundamental and particular risks. Finally, it outlines the steps in risk management, including risk identification, analysis, elimination, and reduction. It provides examples of loss reduction methods like separation, duplication, and diversification. The overall purpose is to help understand the concept of risk management and various approaches and techniques used.

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    IC01 1

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    This document discusses risk management techniques. It begins by defining key risk management terms like peril, hazard, and risk. It then categorizes different types of risks such as catastrophic risks, financial risks, pure risks, and speculative risks. The document also differentiates between dynamic and static risks, as well as fundamental and particular risks. Finally, it outlines the steps in risk management, including risk identification, analysis, elimination, and reduction. It provides examples of loss reduction methods like separation, duplication, and diversification. The overall purpose is to help understand the concept of risk management and various approaches and techniques used.

    Copyright:

    © All Rights Reserved
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    Download as pdf or txt
    36 views16 pages

    Ic01 1

    Uploaded by

    Htet Lynn Htun
    This document discusses risk management techniques. It begins by defining key risk management terms like peril, hazard, and risk. It then categorizes different types of risks such as catastrophic risks, financial risks, pure risks, and speculative risks. The document also differentiates between dynamic and static risks, as well as fundamental and particular risks. Finally, it outlines the steps in risk management, including risk identification, analysis, elimination, and reduction. It provides examples of loss reduction methods like separation, duplication, and diversification. The overall purpose is to help understand the concept of risk management and various approaches and techniques used.

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    of 16

    Chapter 1

    Risk-Management

    CB CB Life Insurance Company Ltd.
    Life Insurance Company Ltd.
    Learning Outcomes

    1. Understand the meaning of risk and distinguish between different types of risks

    2. Understand risk-analysis and risk-management techniques

    Page 2 CB Life Insurance Company Ltd.
    1. Understand the meaning of
    risk and distinguish between
    different types of risks

    CB Life Insurance Company Ltd.
    CB Life Insurance Company Ltd.
    1. Understand the meaning of risk and distinguish
    between different types of risk (1)

    Note

    Peril • Insurance does not protect the asset.


    is the cause of loss. • Insurance does not prevent its loss due to peril.
    • Insurance cannot compensate for non-
    economic losses which cannot be measured in
    is the event or monetary terms as in the case of death of a
    incident that may
    cause a loss. person.

    can cause damage to Note


    an asset.
    • Insurance only reduces the impact of financial
    Example: Fire, Flood, loss on the owner/beneficiary.
    Earthquake, lightning, • Insurance can compensate only economic or
    Landslide etc.
    financial loss.
    Page 4 CB Life Insurance Company Ltd.
    1. Understand the meaning of risk and distinguish
    between different types of risk (2)

    Uncertainty of outcome

    Difference between outcome and expectations


    Risks
    Possibility of loss or damage

    Note
    Insurance only covers risks where the possibility of occurrence is uncertain.

    Page 5 CB Life Insurance Company Ltd.
    1. Understand the meaning of risk and distinguish
    between different types of risk (3)

    1. Catastrophic
    Risks and
    Important Risks

    5. Fundamental 2. Financial
    Risks and Risks and Non-
    Particular Risks Financial Risks
    5 Board
    Categories
    of risks

    4. Pure Risks 3. Dynamic


    and Speculative Risks and Static
    Risks Risks

    Page 6 CB Life Insurance Company Ltd.
    1. Understand the meaning of risk and distinguish
    between different types of risk (4)

    1 Catastrophic/ Critical Risks Important Risks


    • A single event of major magnitude • Less damaging
    leading to significantly higher than • Temporary illness or accidents
    usual number or amount of claims on • Important for affected person for
    insurer some period
    • Natural disasters, outstanding loans

    2 Catastrophic/ Critical Risks Important Risks


    • Risks that lead to losses that can be • Cannot be measured or quantified in
    quantified & measured in monetary monetary terms
    terms • Health
    • Changes in value of assets like
    shares or property

    Page 7 CB Life Insurance Company Ltd.
    1. Understand the meaning of risk and distinguish
    between different types of risk (5)

    3 Dynamic Risk Static Risk


    • Changes in economy, price level, • Even if no changes in economy
    consumer tastes, fashion, income, • Perils of nature & dishonesty of
    output, technology, political upheaval employees
    • Less predictable • Not a gain to society
    • Affect large number of individuals • Small fire, theft in a house
    • Benefit society over the long run • More predictable
    • Insurable

    4 Pure Risks Speculative Risks


    • Not under control of the person • Not under control of the person
    concerned concerned
    • Only chance of loss • Both chance of gain & loss
    • No chance of gain • Not covered by insurance
    • Earthquake, death, theft, fire • Horse racing, gambling, lottery, stock
    market
    Page 8 CB Life Insurance Company Ltd.
    1. Understand the meaning of risk and distinguish
    between different types of risk (6)

    5 Fundamental Risks Particular Risks


    • Affect a lot of people together • Affect only specific person
    • Train accident • Life insurance deal with particular risk

    Page 9 CB Life Insurance Company Ltd.
    1. Understand the meaning of risk and distinguish
    between different types of risk (7)

    Hazards
     Accelerate perils
     Increases the chances of loss

    Physical • Characteristic & qualities of the subject matter which is proposed to be insured
    Hazard • Eg. Smoking, Inflammable material like oil, fire crackers, loose wiring, open live wires

    Moral • Character of the person who is approaching the insurance company for insurance
    Hazard • Eg. Dishonesty of individuals, Mala fide intention

    Morale • Attitude of the person


    Hazard • Eg. Carelessness of the individual

    Page 10 CB Life Insurance Company Ltd.
    2. Understand risk-analysis and
    risk-management techniques

    CB Life Insurance Company Ltd.
    CB Life Insurance Company Ltd.
    2. Understand risk-analysis and
    risk-management techniques (1)

    Risk Identification & Analysis

    Risk Management Steps


    1. Identify/ Assess
    Identify risks 2. Manage
    • Prevent/ Avoid
    • Reduce
    Purpose of risk • Retain – costs of damage
    Eliminate risks
    management are paid from
    i. Current revenue
    ii. Special fund- coast are
    Reduce risks spread out between
    good and bad years
    • Transfer

    Page 12 CB Life Insurance Company Ltd.
    2. Understand risk-analysis and
    risk-management techniques (2)

    Loss reduction methods

    1. Separation
    • Isolating subjects exposed to the same risk
    • Keeping inventories in different places
    • Carriers of goods separating cargo which may ignite or contaminate

    2. Duplication
    • Keeping backup copies

    3. Diversification
    • Spreading risks across areas which may not be affected equally or at the same time
    i. Diversification in business - Making products that are in demand at different times
    - Making products for different markets
    ii. Diversification in Investments - not investing all funds in one company

    Page 13 CB Life Insurance Company Ltd.
    2. Understand risk-analysis and
    risk-management techniques (3)

    Risk Financing techniques (Retention & Transfer)

    • Indemnity agreements- one party agrees to compensate another


    party for losses they may occur

    • Hedging – when a financial transaction is made to offset the loss in


    another. This is done when risks in two transactions are reciprocal or
    moving in opposite directions.

    Risks are measured by the loss.

    Page 14 CB Life Insurance Company Ltd.
    2. Understand risk-analysis and
    risk-management techniques (4)

    Actual Loss
    1. Repair or Replacement or Reinstatement Loss
    2. Consequential Losses
    • Expenses for cleaning up and removal of debris
    • Loss of rent, production, profits until normalcy is restored
    • Possible liability losses for third party injuries

    Maximum Possible Loss (MPL)


    Total loss that can happen

    MPL * Probability of Peril Striking = Probable Maximum Loss (PML)

    MPL & PML are used to Identify & analyze risks.


    Another factor is the credibility of the data that was used in analysis.

    Page 15 CB Life Insurance Company Ltd.
    CB CB Life Insurance Company Ltd.
    Life Insurance Company Ltd.

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