PC1 - A1-5 Flashcards
Possibility vs probability
Possibility says there is a risk but no quantity
Probability says how likely the risk is from 0 to 1
Pure vs Speculative Risk
Pure - Loss or no loss
Speculative - possibly chance of gain (price risk and credit risk are here)
Risk Quadrants
Hazard (Pure Risk) - most insurance, property and liability
Operational (Pure Risk) - failure in process or system or IT
Financial (Spec Risk) - market force on financials or price
Strategic (Spec Risk) - change in economy/politics
3 financial consequences of risk
1) Expected cost of loss, hidden/indirect costs
2) Expenditures on risk management, aka buying insurance
3) Cost of residual uncertainty - cost of worrying over the risk
What is risk management?
Assessing, controlling, and financing risk
Any activity taken to deal with risk
A loss exposure has 3 elements..
An asset exposed to loss, a cause of loss, and a financial consequence
4 types of loss
Property - tangible or intangible
Liability - results from a claim, even if you win it costs money
Personnel - key person’s death
Net Income - reduction in revenue due to a loss, or increase in expenses
Pre-loss Risk Goals (4)
Economy of Operation
Tolerable Uncertainty
Legality
Social Responsibility
Post Loss Risk Goals (6)
Survival -operations not permanently halted
Continuity of Operations - know what can stop and for how long
Profitability - if this is important often buy more insurance
Earnings Stability
Growth
Social Responsibility
Risk Management steps (6)
1 - Identify loss exposures
2 - Analyze loss exposures - severity, total losses, frequency
3 - Examine feasibility of techniques
4 - select appropriate technique
5 - Implement selected technique
6 - Monitor results
What is risk control?
Minimizing freq. or severity of loss. Or make more predictable
Steps to Monitor Risk Management Implementation
1 - Establish standard of performance
2) Compare effort w/ standard
3) Correct substandard performance
4) Evaluate standards that were exceeded
6 Risk Control Techniques
Avoidance (reduces freq)
Loss Prevention (reduces freq)
Loss Reduction (disaster recovery here) (reduce severity)
Separation (reduce severity)
Duplication (reduce severity)
Diversification
Risk Control Goals (4)
1) Implement effective and efficient measures
2) Comply w/ Legal
3) Promote life safety
4) Business continuity
Best risk control by loss type
Property - Avoidance, prevention, reduction, separation
Liability - mostly prevention and reduction
Personnel - prevention and reduction
Net Income - separation, duplication, diversification
