PURERISK Flashcards
Direct Losses include:
a. Damage to assets
b. Injury and Illness to employees
c. Liability claims and defense losses.
Indirect Losses. They arise as consequence of direct losses.
a. Loss of Normall Profit (net cash flow)
b. Continuing and extra operating expenses
c. Higher cost of funds and foregone investment
d. Bankruptcy Costs
these are actions that reduce the expected cost of losses and or the severity (size) of losses that occur.
LOSS/RISK CONTROL
2 Types of Loss/Risk Control
actions that primarily affect the frequency of losses. Example: Routine inspection of mechanical parts.
a. Loss Prevention
2 Types of Loss/Risk Control
actions that primarily influence the severity of losses that do occur. Example: Installation of heat-or-smoke-activated sprinklers to minimize fire damage.
Loss Reduction
Two General Approaches to Loss/Risk Control
- Reducing the level of risky activity.
- To increase the number of precautions (level of care) for a given level of risky activity. The goal is to make the activity safer.
This risk management method/treatment
is used to obtain funds to pay for or offset losses that occur.
LOSS FINANCING/RISK FINANCING
Four Methods of Financing Losses
A business retains the obligation to pay for part or all of the losses
Retention
Four Methods of Financing Losses:
Insurance contracts reduce risk for the buyer by transferring some of the risk loss to the insurer. Insurers in turn reduce risks through diversification
Insurance
Four Methods of Financing Losses:
Forwards and Futures are contracts that can be used to hedge risk; that is, they may be used to offset losses that can occur from changes in interest rates, commodity prices, foreign exchange rates, etc.
Hedging
Four Methods of Financing Losses:
These allow business to transfer risk to another party.
Other Contractual Transfers
Two Major Forms of Internal Risk Reduction
diversifying activities or not putting all of their eggs in one basket. Example: Portfolio diversification
Diversification
Two Major Forms of Internal Risk Reduction
to obtain superior forecasts of expected losses.
Investment In Information
