Week 6 Flashcards
What does risk management do?
Assess risk (they will analyse risk, how server might the consequences be and the frequency of the risk)
Avoid risk (how can they avoid financial loss, avoid legal problems, avoid fraud or taking wrong risk)
Risk control (they want to control the levels of risk they are taking, might they use reinsurance to lower this, might they use mutual insruance to spread risk)
What are the three pillars to risk management?
Risk finance, risk control and risk analysis
What is a core foundation in risk analysis?
Heinrich’s triangle which states smaller accidents usually lead up to large accidents if not addressed
after Heinrich’s model in risk analysis what is next?
The TARA model which helps insurance groups decide how to handle the risks
What does TARA stand for?
Tolerate (risk is small and acceptable as is) Accept (the risk cannot be avoid so its prepared for)
Reduce (Attempt to weaken the impact of the risk such as fire alarms)
Avoid (stop the risk by not doing it)
What could you talk about in each risk management pillar?
Risk analysis (Heinrichs triangle and the TARA model and what they stand for)
Risk control (proactive measures, reactive measures and residual risk which is left over risk you cant eliminate)
Whats an SME?
Small/ medium enterprise
Is it true that small orginzations use more insruance over large ones and is so why? (3)
Its not true you got baited bro
Larger organisations use insruance because it gives them larger financing capability, spreads their risks and shares their risks and decreases their impact of loss
What are advantages of insurance? (6)
Spreads risk
decreases loss impact
Less pressure financially for cash
Allows for companies to grow with less risk
Promotes company innovation
Communicates credibility to consumers
What are disadvantages of insurance?
Insurance can encourage complacency
Can encourage illegal fraud in hopes of making profit
costs premiums that you may never have to use
policy could be a term contract meaning you have to pay for example 12 months
you may have to require insurance that you never use
Your risk may surpass what the insurer will pay out for in their policy if you are grow that much
What is direct vs indirect losses?
Direct costs are immediate and are from the event as a primary such as a house fire
indirect loss could be a second hand loss for example someones house sets and they have to pay for temp housing as result of the fire
What is risk financing?
How you pay for and handle losses
What are the methods of risk financing?
Self insurance (setting money apart to pay for potential losses or financial losses which must have been thought about in advance of the event or loss)
Derivatives which is a financial instrument (insruance groups use them to avoid currency exchange loss, lowering interest rates, lowering tax and protecting again inflation such as using index funds)
Transferring risk such as contractual risk transfer (a company might try build a house in 50 days but the house will take 60 days when they are 45 days in they realise this, to avoid loss of money, they will transfer the contract to someone else thus risk financing by avoiding risk and handling it)
How might an org fund retention?
Borrow
shareholder funding
bank loan
What is and give me an example of a weather derivative?
A weather derivative is a financial tool essentially which will pay for losses caused by weather, for example energy companies will have windmills, may have weather deriviateiss which pay for loss where there is less wind or if a ski resorts snow all melts and no one skis there for weeks, they will use the weather derivatives
