Risk Management Concepts, Pooling of Risks, & Principles of Insurance

1. Risk Management Concepts, Pooling of Risks, & Principles of Insurance Dr. John F. Fitzgerald, Jr CLU, CPCU, CIC

2. Risk Management Concepts

3. Importance of Risk Management • Early history of insurance management • RIMS • Risk manager of the year- Business Insurance • Interest in risk management • Need for risk management

4. Commercial Risk Management Defined The identification, measurement, control, and administration of potential loss-causing events, given limited resources, in order to accomplish the financial goals of the entity.

5. Risk Identification • The physical survey • Analysis of contracts • Flow charts • Analysis of financial statements • Checklists

6. Measure Loss Potential • Loss frequency • Loss severity • Maximum possible loss • Maximum probable loss

7. Control of Risk-Tools of Risk Management • Avoid • Prevent • Reduce • Retain • Unfunded • Funded

8. Control of Risk (cont.) • Transfer • Property • Risk • Contractual • Insure • Pooling • Combination

9. Risk Characteristics as Determinants of the Tool

10. Risk Administration • Policy statement • Location of risk manager in the organization • Disaster plan • Evaluating risk management decisions- the importance of feedback

11. Case Studies of Commercial Risk Management • Precious metals firm • Hospital • Municipality • Amusement park • Major sports event • Concert

12. 2011 Emerging Liabilities • EMF • Nano Scale Materials • Genetically Modified Plants and Animals • Weather Patterns • Hydrofracking Social Media

13. Pooling of Risks

14. Pooling of Risks • Pooling technique • Pooling of losses • Long term care- policies have pooled benefits • Reinsurance facility- pool for high risk drivers • Reinsurance pools for aircrafts • Natural disaster pools

15. Principles of Insurance

16. Requisites of an Insurable Risk • Large number of homogeneous units • Fortuitous loss • Accidental and unintentional • Definite and measurable loss • No catastrophic loss • Economically feasible

17. How Insurers Control Risk • Loss prevention • Loss reduction • Deductibles • Coinsurance • Copayments • Limits of liability • Exclusions

18. Characteristics of Insurance • Risk transfer • Pooling concept • Law of large numbers • Reduces uncertainty • Exchange

19. Costs • Operation • Cost of doing business • Fraud • Inflated losses

20. Benefits • Indemnification • Reduction- worry & fear • Source of investment funds • Loss prevention • Enhanced credit • Encourages innovation