ELYAELYANA BT SHAFEE
NURUL ZETA BT ABU SAMAH
NURZATI ALYANI BT MOHD ASHARI
RAJA KHAIRUN NURFARHANNA BT RAJA HAMZAH
IDENTIFYING AND ANALYSING LOSS
A loss exposures is a set of circumstances that
presents a possibility of loss, whether or not it
actually takes place.
Element of property loss exposures:
- the value exposed to loss
- the peril causing the loss
- the potential financial impact of the loss
TYPES OF PROPERTY AND VALUES
EXPOSED TO LOSS
i. Real property
ii. Personal property
- tangible property
- intangible property
iii. Non-owned property
i. Real Property
Structures that intended to be permanently attached
to the land.
a) Unimproved land
Real estate excluding all permanent property
Classified separately because values are tough to
determine and perils that can cause damage are
distinctive or unusual.
Not covered by insurance.
Buildings and other structures
Loss exposure depends on the type of
construction, occupancy and location of property.
Potential loss exposures includes:
i. values of building and structures directly
exposed to loss.
ii. Income lost until damaged property is
repaired or replaced.
These exposures are almost always insurable.
ii. Personal Property
Includes all property other than real property.
Categorized as tangible or intangible.
Property that has physical form.
Money and securities;
• All types of monetary asset. (e.g: cash, securities
• Loss exposure varies between size of business.
• Biggest lost exposure is theft.
• Paper or other means on which account receivable
are recorded is subject to physical damage,
destruction or removal of possession.
• Loss potential can be reduced by implementing
loss control methods.
• Defined as raw material, good in progress and
• Loss exposures include perils of transportation,
fluctuation of values and when the time supplier
suffer loss and unable to deliver.
Furniture, equipment and supplies;
• It consists of many separate pieces and relatively
low value and frequently shift from one location to
• Thus it is impractical to focus on one item for
precise valuation and it is difficult to keep and
• May then lead to risk management problem.
• It subject to depreciation and obsolescence and
can be very costly to reproduce.
• Loss exposures usually caused by breakdown of
machinery which will resulted in additional loss
• Example is damage to power, heating, cooling and
• It also subject to unique perils such as
• It is usually uninsurable.
• It includes software, hardware, data in the system
and discs, cards or tapes on which it is recorded.
• It requires special environmental control system
such as separate temperature and humidity
control. (e.g: magnetic tape)
• Other loss potential is from computer fraud and
Valuable papers, books and documents;
• It includes maps, books, drawings and other
• It creates special loss exposure because they are
small, light and easily destroyed or lost.
• It also can be difficult to value and reproducing it
is time consuming and may lose income or incur
• It consists of cars, aircraft, boats and other mobile
• Exposed to special hazards arise from
• Collision is a major cause of loss.
• Mobile property is usually insurable.
b) Intangible property
It includes goodwill, copyrights, patent, trademark,
trade names, leases and leasehold interest,
licenses and trade secrets.
They are difficult to recognize and value.
Some intangible asset exposures are insurable
and some are not.
Have less obvious of losses than losses by damage to owned
property. Non-owned property include:
Dry cleaner or laundry and warehouse operators have on
their premises property of customers which they are not
The terms of the lease agreement usually determine who
is responsible for losses. But some leases require tenants
to pay for repairs towards damage on premises.
Property on consignment:
Between distributors and retailers should be spelled out
in a contract of the responsibility for losses.
PERILS CAUSING PROPERTY LOSSES
There are an infinite number of perils that can
destroy or damage property.
Many perils for which insurance is readily available
but many causes of loss that are excluded from
insurance coverage such as explosion as a human
A peril covered by insurance policy is defined in the
policy to include only what the insurer intends to
Being familiar with the insurance definitions of particular
perils may be useful in the risk management process.
Examples of natural and peril events:
Natural perils –
Acts of nature
Fire of natural origin
Human perils –
Acts of individual or small
group of individual
Economic perils –
Acts of large group of
people who act
to particular conditions
Pollution (smoke, fog,
Theft, forgery, fraud
• Changes in consumer
• Currency fluctuations
• Depression (recession)
• Stock market declines
• Consequence of strikes
• Technological advances
FINANCIAL CONSEQUENCES OF
A PROPERTY LOSS
There are many type of valuation
associated with property, such as:
Accounting (book) value
Functional replacement cost
Actual cash value (depreciated replacement cost)
Economic or use value
i. Historical cost;
This represent the price paid to acquire the asset.
HC is a useful indicator to assess property losses
for assets that are kept for a relatively short period
of time such as inventory.
The longer the assets remain with the firm, the less
useful is HC since it will be soon be outdated
because of inflation, changes in technology and
Tax appraised value is usually determined by the
local authority (government) and is of little use to
This valuation is only useful for the purpose of
determining local council rates of taxes that are
payable by property owners to the local authority
based on property values.
Accounting (book) value;
Book value is HC less the accumulated
Accumulated depreciation is an estimation of the
decline in the value of the asset over its useful life,
and is determined using accounting assumptions.
However, book value will not represent the
current value of the asset and may sometimes be
RC is one of the most useful measures of
assessing the property loss exposure.
RC is the amount required to replace a lost,
damaged or destroyed asset
For buildings, the replacement cost may be
Quotations or bids by contractors or valuers
Using construction price index
Using square foot construction cost and then
extrapolating in for the entire building
For personal property, the replacement cost may
be determined by:
Begins with an inventory that owns or uses at
each of its facilities
Once developed, personal property falls into
number of broad classifications
Method of establishing the RC of items in each
Normally the process performed on computers
which can be easily brought up to date with
current prices as needed
Some assets cannot be replaced with assets that
readily available in the market. Instead they have to
be replicated or reproduced.
For example documents, maps, paintings
Reproduction cost represents the cost of
reproducing the assets using the same material,
artistry and other expertise comparable to that
used in the original
Functional Replacement Cost;
For certain specific assets, RC may not be suitable
simply because the asset to be replaced is no
Example mobile phones
FRC is an assessment based on the RC of a
different model of asset but which is capable of
performing the same function as the old one.
The market price represents the price to be paid
between a willing seller and a willing buyer in an
arm’s length transaction.
However, in certain cases, market value may be
difficult to assess in the absence of a secondary
market for such assets.
viii. Actual Cash Value
(Depreciated Replacement Cost);
The actual cash value is replacement cost less its
• The depreciation may be calculated on a
different basis than that used for accounting
• Can be applied to real or personal property.
Economic or Use Value
For valuing items of property based on the value
of the future income stream attributable to that
item of property.
Not affected by cost of an item or expenses that
TECHNIQUES TO IDENTIFY
PROPERTY LOSS EXPOSURES
Thorough survey/questionnaire to identify items of
tangible property whether real or personal.
Provide indications of intangible property
Know the amounts, causes of losses.
Helpful in analysing loss exposures as a basis for
forecasting the frequency and effective control of an
organisation’s future actual loss.
Good predictor for future losses.
Financial statements and underlying records;
Identify loss by referring organization’s income
Focus on revenue section
Other records and documents;
Minutes of board meeting can reveal plan to acquire
Records, memorandum or correspondence may
reveal property exposures for example from
purchasing and maintenance department.
Extend beyond an organization, encompassing
suppliers and customers and the routes to them.
Suggest the importance:
i. Suppliers’ and customers’ properties
ii. Transportation bottlenecks
iii. Key role of an organization’s vehicles
May discover assets that are not identified on any
balance sheet or flowchart or find any reported
assets no longer exist but yet to be removed from
Consultation with experts within and outside the
Discussion with front line
Supervisors and middle managers may have
alternative assets give better serve.
Experts outside can determine the replacements
cost of assets.