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Chapter 3
Chapter 3
Introduction
to Risk
Management
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Meaning of Risk Management
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Objectives of Risk Management
• Post-loss objectives:
– Ensure survival of the firm (most important)
– Continue operations
– Stabilize earnings for shareholders
– Maintain growth Đang tải…
– Minimize the effects that a loss will have on
other persons and on society
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Four steps in Risk Management
Process
• Step 1: Identify potential losses
• Step 2: Measure and analyze the loss
exposures
• Step 3: Select the appropriate combination
of techniques for treating the loss
exposures
• Step 4: Implement and monitor the risk
management program
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Exhibit 3.1 Steps in the Risk Management
Process
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Step 1: Identifying Loss Exposures
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Step 2: Measure and Analyze Loss
Exposures
• Estimate the frequency and severity of loss for each
type of loss exposure
– Loss frequency refers to the probable number of losses
that may occur during some given time period
– Loss severity refers to the probable size of the losses that
may occur
• Once loss exposures are analyzed, they can be
ranked according to their relative importance
• Loss severity is more important than loss
frequency:
– The maximum possible loss is the worst loss that could
happen to the firm during its lifetime
– The probable maximum loss is the worst loss that is likely
to happen
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Step 3: Select the Appropriate Combination of Techniques
for Treating the Loss Exposures
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Select the Appropriate Risk Management
Technique
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Risk Financing Methods: Retention
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Risk Financing Methods: Retention
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Risk Financing Methods: Retention
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Risk Financing Methods: Retention
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Risk Financing Methods: Retention
Advantages Disadvantages
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Risk Financing Methods: Non-insurance
Transfers
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Risk Financing Methods: Non-insurance
Transfers
Advantages Disadvantages
– Can transfer some
losses that are not – Contract language
insurable may be ambiguous,
– Save money so transfer may fail
– Can transfer loss to – If the other party
someone who is in a
better position to fails to pay, firm is
control losses still responsible for
the loss
– Insurers may not
give credit for
transfers
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Risk Financing Methods: Insurance
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Risk Financing Methods: Insurance
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Risk Financing Methods: Insurance
Advantages Disadvantages
– Firm is indemnified – Premiums may be
costly
for losses • Opportunity cost
– Uncertainty is should be
reduced considered
– Negotiation of
– Insurers may contracts takes time
provide other risk and effort
management – The risk manager
services: loss-control may become lax in
exercising loss
service, loss control
exposure analysis,
etc
– Premiums are tax-
deductible 3-0
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Exhibit 3.2 Risk Management Matrix
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Market Conditions and the Selection of
Risk Management Techniques
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Step 4: Implement and Monitor the Risk
Management Program
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Implement and Monitor the Risk
Management Program
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Benefits of Risk Management
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Personal Risk Management
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Steps in Personal Risk Management
• Step 1: Identify loss exposures
• Step 2: Analyze Loss Exposures
• Step 3: Select Appropriate techniques for
treating the loss exposures.
• Step 4: Implement and review the
program periodically.
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Appropriate Techniques for Treating
the Loss Exposures
• Avoidance
• Risk Control
• Retention
• Non-Insurance Transfer
• Buying Insurance
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