Bonus C – Managing Risk
C-1
Managing Risk
bonus
chapter
=
what’s new in this edition C.3
brief chapter outline and learning goals C.3
lecture outline and lecture notes C.5
PowerPoint slide notes C.27
lecture links C.37
lecture link C-1: THE FOUR FACETS OF RISK C.38
lecture link C-2: RISK PERCEPTION: ANALYTICAL VERSUS INTUITIVE C.39
lecture link C-3: THE ECONOMIC IMPACT OF A CATASTROPHE C.39
lecture link C-4: RECONSIDERING FLOOD INSURANCE C.39
C
Bonus C – Managing Risk
C-2
what’s new in
this edition
Bonus C – Managing Risk
C-3
brief chapter outline
and learning goals
bonus c h a p t e r C
Managing Risk
Getting To Know JOACHIM OECHSLIN, of Munich Re
learning goal 1
Identify the environmental changes that have made risk management important.
I. UNDERSTANDING BUSINESS RISKS
A. How Rapid Change Affects Risk Management
learning goal 2
Explain the four ways of managing risk, and distinguish between insurable and uninsurable
risk.
II. MANAGING RISK
A. Reducing Risk
B. Avoiding Risk
C. Self-Insurance
D. Buying Insurance to Cover Risk
learning goal 3
Define insurance policies and explain the law of large numbers and the rule of indemnity.
III. UNDERSTANDING INSURANCE POLICIES
A. Rule of Indemnity
B. Types of Insurance Companies
learning goal 4
Discuss the various types of insurance businesses can buy to manage risk.
IV. INSURANCE COVERAGE FOR VARIOUS KINDS OF RISK
A. Health Insurance
B. Disability Insurance
Bonus C – Managing Risk
C-4
C. Workers’ Compensation
D. Liability Insurance
E. Life Insurance for Businesses
F. Insurance Coverage for Home-Based Businesses
G. The Risk of Damaging the Environment
V. SUMMARY
Bonus C – Managing Risk
Getting to Know JOACHIM OECHSLIN, of MUNICH RE
Oechslin is chief risk officer of Munich Re and is known for his holistic approach to risk
management. Knowing that the damage of a disaster isn’t limited to its direct aftermath, it also
spreads through the supply chain; he evaluates financial market risks as well as insurance risks.
I. UNDERSTANDING BUSINESS RISKS
A. RISK MANAGEMENT is a major issue for business-
es.
1. Given natural disasters, hackers, identity theft,
and other catastrophes, risk management is get-
ting more attention.
Bonus C – Managing Risk
(See complete PowerPoint slide notes on page C.27.)
(See complete PowerPoint slide notes on page C.27.)
(See complete PowerPoint slide notes on page C.28.)
(See complete PowerPoint slide notes on page C.28.)
Bonus C – Managing Risk
6. An ERM program should have well-defined goals,
such as defining:
A. RISK refers to the chance of loss, the degree of
probability of loss, and the amount of possible loss.
Bonus C – Managing Risk
(See complete PowerPoint slide notes on page C.28)
Businesses are becoming much better at managing hazard
risk, financial risk, and operational risk, but most have failed
to appreciate the impact of the more dangerous risk, strategic
risk. (See the complete lecture link on page C.37 in this manu-
al.)
Bonus C – Managing Risk
2. Examples:
when 400 deaths were linked to faulty tires.
Bonus C – Managing Risk
C-10
Perceived risk involves two elements—the logical and ana-
lytical component and the intuitive and emotional component.
(See the complete lecture link on page C.38 in this manual.)
(See complete PowerPoint slide notes on page C.29.)
(See complete PowerPoint slide notes on page C.29.)
After the devastating 2011 earthquake and tsunami that hit
Japan, the country’s economic outlook is uncertain. (See the
complete lecture link on page C.39 in this manual.)
Bonus C – Managing Risk
C-11
only “catastrophe” policies to cover big losses.
Bonus C – Managing Risk
C-12
(See complete PowerPoint slide notes on page C.29.)
Bonus C – Managing Risk
E. BUYING INSURANCE TO COVER RISK
1. Well-designed, consistently enforced risk–
prevention programs REDUCE THE PROBA-
BILITY OF CLAIMS, but accidents do happen.
a. Spending by business and nonprofits on in-
Bonus C – Managing Risk
C-14
This text figure shows some types of insurance protection
provided by the federal government.
(See complete PowerPoint slide notes on page C.30.)
(See complete PowerPoint slide notes on page C.30)
Bonus C – Managing Risk
C-15
among different geographic areas.
vi. The insurance company can SET
STANDARDS FOR ACCEPTING
RISK.
learning goal 3
Define insurance policies, and explain the law of large numbers and the rule of in-
demnity.
III. UNDERSTANDING INSURANCE POLICIES
A. An INSURANCE POLICY is a written contract be-
tween the insured and an insurance company that
promises to pay for all or part of a loss.
1. A PREMIUM is the fee charged by the insur-
ance company for an insurance policy.
Bonus C – Managing Risk
C-16
(See complete PowerPoint slide notes on page C.31.)
(See complete PowerPoint slide notes on page C.31.)
(See complete PowerPoint slide notes on page C.32.)
Bonus C – Managing Risk
C-17
KINDS OF RISK
A. There are many types of insurance that cover var-
ious losses.
Bonus C – Managing Risk
PPT C-15
Types of Insurance Companies
(See complete PowerPoint slide notes on page C.32.)
PPT C-16
Stock and Mutual Insurance
Companies
(See complete PowerPoint slide notes on page C.33.)
progress
assessment
(Text page C-7)
PPT C-17
Progress Assessment
(See complete PowerPoint slide notes on page C.33.)
Bonus C – Managing Risk
4. HEALTH MAINTENANCE ORGANIZATIONS
(HMOs) are health care organizations that re-
quire members to choose from a restricted list of
doctors.
a. HMOs offer a full range of health care bene-
fits with emphasis on helping members to
STAY HEALTHY.
a. PPOs also contract with hospitals and phy-
sicians, but, unlike HMOs, YOU DO NOT
Bonus C – Managing Risk
PPT C-18
Health Insurance Changes
(See complete PowerPoint slide notes on page C.33.)
PPT C-19
Employer Health Insurance Options
(See complete PowerPoint slide notes on page C.34.)
TEXT FIGURE C.2
Private Insurance
(Text page C-8)
This text figure shows some types of insurance coverage not
provided by private insurance companies.