Risk Management
Definition of Risk Management
• Risk management is the identification, assessment, and prioritization of risks followed by coordinated and economical application of resources to minimize, monitor, and control the probability and/or impact of unfortunate events or to maximize the realization of opportunities. Risk management’s objective is to assure uncertainty does not deflect the endeavor from the business goals.
Objectives of Risk Management
1. Reducing the factors affecting risk 2. Minimizing the loss when it occurs 3. To avoid relatively less risky ventures 4. To have proper assessment
5. To minimize the burden of risk
6. To indemnify the sufferer after loss
7. To prevent anybody from getting more than his actual loss.
Functions of Risk Management
1. Discovering the sources from which risk may arise
2. Evaluating the impact is loss occur
3. Selecting most effective techniques to deal with risk
4. To get information about the amount of loss 5. Analysis of financial statement.
Classification of risk
1. Pure VS Speculative risk
2. Fundamental VS particular risk
3. Social phenomena of fundamental risk VS Physical phenomena of fundamental risk
4. Standard VS Super standard VS sub-standard VS uninsurable risk
5. Business VS Financial risk
6. Insurable VS uninsurable risk
Sources of risk information
1. Personal form 2. Medical report 3. Agent report
4. Inspection report 5. Friends of insured
6. Medical information bureau 7. Family/ physician of insured 8. Neighbors
9. Business associates
10.Credit information bureau 11.Statistical report
12.Insurer’s own study & research
Technique/methods of Risk Management
1. Avoidance of risk 2. Assumption of risk 3. Prevention of risk 4. Distribution of risk 5. Elimination of risk 6. Hedging
7. Insurance
Technique/approaches of risk prevention
1. Engineering approach 2. Human approach
3. Statistical approach 4. Educational approach 5. Enforcement approach
Risk reduction technique using insurance
1. Increased knowledge 2. Pooling
3. Loss prevention 4. Financial capacity
5. Further transfer of risk
Factors affecting risk in Insurance
lifelife
• Age
• Physical structure
• Physical condition
• Family history
• Profession
• Habit
• Nationality
• Sex: F/M
marine marine
• Status of Hull
• Status of Cargo
• Rout
• Seaworthiness
• Time and voyage
firefire
• Particular items
• Subject matter
• location
• Anti fire
arrangement
• Political climate
Evaluation of risk in Insurance
1. Judgmental method 2. Numerical method
– Super standard risk: less than 75 – Standard risk: 75-125
– sub-standard risk: 125-500
– uninsurable risk: more than 500
