THE CONCEPT OF RISK

   Introduction to risk
   Nature of risk
   Types of risk
   Risk Management
   Risk evaluation and abatement
Defining Risk
Uncertainty and certainty
Measuring risk 
Probability Theory
Psychological Aspects of risk
Severity and Frequency
Chance
 The Nature of Risk
Pure and speculative risk
Fundamental and particular risk
Personal Risks
Property Risks
Liability Risks
Risk arising from failure on part of others
Fidelity Risks
Risks due to ownership and use of
Transport vehicle
We can look at risks in the following manner also

Personal

Property

Liability

Loss due to other’s failure

Fidelity risks

Risk due to ownership or use of transport vehicle

Personal Risks
 Premature death (Dying too  early)
 Dependent old age (Dying too late)
 Sickness  or  disability  (Resulting  in  loss  of  income  and 
earning  power,    involving  additional  expenses  and  extra 
needs)
 Unemployment  (Loss  of  income  may  be 
temporary/permanent,  but  routine  living  expenses 
continue.   Fixed  liabilities like loan repayments have still 
to be paid  , hence  further multiplying  the difficulties )
Property Risks
• Loss/damage to property
• Loss of use of property
• Additional expenses occasioned by the loss of property

Liability Risks
They arise out of human mistakes often termed as civil wrongs
committed by a person resulting in injury and/or death to another
person, and/or loss of or damage to property.

Risk arising from failure on part of others

Risk arising due to failure on part of another person to meet a
specified obligation, e.g. guarantee bonds and sureties.
Fidelity Risks:

Risks arising due to dishonesty of employees and others in 
course of performance of their duties causing loss of money 
and stocks to the owner .

Risks due to ownership and use of Transport vehicle :

Use of transport vehicles opens scope for two types of risks –

1 Own damage or loss to the vehicle due to a variety of pure risks

including negligence

2 Death/injury to third parties and loss/damage to their property.

Management of Risks

Definition
Management of risks is concerned with direction of 
purposeful activities towards the achievement of individual or 
organizational goals.

Risk Management  may be defined as “the identification, 
analysis and economic control of those risks which can 
threaten, the assets or earning capacity of an enterprise.”

Risk management evaluates which risks identified in the 

risk assessment process require management and selects and 
implements the plans or actions that are required to ensure 
that those risks are controlled.
 Features of Risk Management 
 To create the right corporate policies and strategy.
 To management  men and machines (processes) effectively.
 To evaluate the risks confronted by a business.
 To effectively handle, spread  , monitor and insure the risks .
 To  introduce  various  plans  and  techniques  to  minimize  the 
risks.
 To give advices and suggestions for handling the risks.
 To create  risk awareness  among the people.
 To avoid cost, disruption and unhappiness  relating to risks.
 To  decide  which  risks  are  worth  taking/pursuing,  and  which 
should be shunned.
 To  fix  the  sum  assured  under  the  policy  and  to  decide  on 
whether to insure or not.
 To select the appropriate technique or method to manage the 
risks.
 Objectives of Risk Management

 Protecting employees from accidents that might 
result in death or injury
  Due attention given to cost of handling risks.

  Effective utilization of resources.

  Maintaining good relations with society and 
public.
 Risk Identification
The various methods of risk identification are . 
 Preparing Checklist of risks or various losses which may 
arise due to risks 
 On-site Inspections and risk assessment

 Financial Statement  analysis 

 Flowchart preparation  and identification of risky activities
 Interaction with employees for their views about risk 
exposures of business  based on their knowledge and 
experience
 Statistical records of occurrence of losses  related to various 
categories of risks
 Scope of Risk Management

Control of Loss Financing of Loss Internal Risk Control

Extra Risk Retention Diversification

Precautions and Self
Insurance

Reduced Level of Buy Insurance Investment

Risky Activities Policies In risk
Contracts information

Non-Insurance
Risk Transfers
 Risk Management Organization

 
DIRECTOR -RISK
MANAGEMENT

Risk Management
Analyst
   

Insurance Manager Safety, Health and Loss Claims Security

Prevention Manager Manager Manager

Supervisor
Insurance Insurance Claims Security(s)
Supervisor Administrator
Administrator Clerk(s) Supervisor Fire
Safety Protection

Supervisor Industrial
Hygiene
 Methods of Handling Risks 

 Prevention/ avoidance of Risks 
 Reduction of Risks
 Shifting or transferring of Risks
 Accepting/resuming Risks
 Spreading Risks