Chapter 1 Flashcards
Risk Management
The means of attempting to deal with the risks we face
Definitions of risk (4)
- Possibility of something unfortunate happening. 2. doubt concerning somethings outcome. 3. unpredictability. 4. possibility of loss.
Risk Transfer Mechanism
The acceptance of an unknown future potential risk by an insurer for an agreed premium.
Risk-Seeking
More inclined to take on risk
Risk-Adverse
Less inclined to take on risk
3 reasons why risk management is important
- Reduces potential for loss. 2. Gives shareholders confidence. 3. Able to quantify risk for future benefit
Risk appetite
How risk-seeking or risk-adverse someone is
Level or risk is determined by…
…Frequency & Severity
Elements of Risk Control (3)
control, reduce and/or eliminate risk
Aspects to controlling risk (2 & e.g. for each)
Physical (sprinkler/alarm) - Financial (contracts are well worder)
the concept of uncertainty
Implies doubt about the future, as a result of incomplete knowledge
Frequency
How oftne it will happen
Severity
How serious it will be if it happens
Peril
That which gives rise to a loss
Hazard
That which influences the effect of the peril