3. What is Risk ?
Uncertainty about future events
Two basic types of risk:
1. Speculative risks involve the possibility of gain or loss
2. Pure risks involve only the possibility of loss or no loss
What is Risk Management ?
Process of conserving the firm’s earning power and assets by
reducing the threat of losses due to uncontrollable events
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4. Process
The Risk-Management
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5. Insurance as Risk Management
Premium is free paid by policyholder for insurance coverage
Insurable VS Uninsurable Risk
Insurable risk must meet four criteria:
1. Predictability
2. Casualty
3. Unconnectedness
4. Verifiability
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6. The Insurance Product
1. Liability Insurance 4. Health Insurance
– Workers’ Compensation – Disability Income Insurance
2. Property Insurance – Special Health Care Providers
– Business Interruption • Health Maintenance
Insurance Organization (HMO)
3. Life Insurance • Preferred Provider
– Group Life Insurance Organization (PPO)
• Point-of-Service Plan
(POS)
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7. Special Forms of Business Insurance
• Key person insurance is a special form of business insurance
designed to offset expenses entailed by the loss of key employees
• Business continuation agreement is a special form of business
insurance whereby owners arrange to buy the interests of deceased
associates from their heirs
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