Understaning Risk
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In this presentation we will help you to “Understand Risk”, with detailed description on the concept, types and classification of risks while also talking about effective ways to handle different Types of Risk in the banking sector. To know more about Welingkar School’s Distance Learning Program and courses offered, visit: http://www.welingkaronline.org/distance-learning/online-mba.html
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Understaning Risk
- 1. Understanding Risk Chapter 1 Undertaking Risk Intorduction to Insurance and Risk Management
- 2. Learning Objectives To understand the concept of risk To understand risk vs. Uncertainty To understand types of risk To understand classifying pure risks To understand methods of handling pure risk Chapter 1 Undertaking Risk Intorduction to Insurance and Risk Management
- 3. The Concept of Risk Risk is a condition in which there is a possibility of an adverse deviation from a desired outcome that is expected or hoped for At its most general level, risk is used to describe any situation where there is uncertainty about what outcome will occur. Life is obviously risky Chapter 1 Undertaking Risk Intorduction to Insurance and Risk Management
- 4. Risk vs. Uncertainty Uncertainty is often confused with the risk Uncertainty can be perceived as opposite of certainty where you are assure of outcome or what will happen Accordingly, some weights or probabilities can be assigned into risky situations but uncertainty, the psychological reaction to the absence of knowledge lacks this privilege Chapter 1 Undertaking Risk Intorduction to Insurance and Risk Management
- 5. Loss and Chance of Loss Loss refers to the Act or instance of losing the detriment or a disadvantage resulting from losing Loss means being without something previously possessed Chapter 1 Undertaking Risk Intorduction to Insurance and Risk Management
- 6. Perils A peril refers to the cause of loss or the contingency that may cause a loss Chapter 1 Undertaking Risk Intorduction to Insurance and Risk Management
- 7. Hazards 1. Physical Hazards – Property Conditions 2. Intangible Hazards – Attitudes and Culture a) Moral Hazard – Fraud b) Moral Hazard – Indifference c) Societal Hazard – Legal and Cultural Chapter 1 Undertaking Risk Intorduction to Insurance and Risk Management
- 8. Types of Risks Financial and Non-financial Risks Individual and Group Risks Pure and Speculative Risks › Pure risk situations are those where there is a possibility of loss or no loss. There is no gain to the individual or the organization › Speculative risks are those where there is possibility of gain as well as loss Static and Dynamic Risks Quantifiable and Non-quantifiable Risks Chapter 1 Undertaking Risk Intorduction to Insurance and Risk Management
- 9. Classifying Pure Risks Chapter 1 Undertaking Risk Intorduction to Insurance and Risk Management
- 10. Personal Risks These are the risks that directly affect the individual’s capability to earn income. Personal risks can be classified into the following types a) Premature death b) Old age c) Sickness or disability d) unemployment Chapter 1 Undertaking Risk Intorduction to Insurance and Risk Management
- 11. Property Risks These are the risks to persons in possession of the property being damaged or lost Chapter 1 Undertaking Risk Intorduction to Insurance and Risk Management
- 12. Liability Risks These are the risks arising out of the intentional or unintentional injury to the persons or damages to their properties through negligence or carelessness Chapter 1 Undertaking Risk Intorduction to Insurance and Risk Management
- 13. Methods of Handling Pure Risk Avoidance Avoid the risk to the circumstances which may lead to losses Loss Control Loss Prevention – Reduce Loss Frequency Loss Reduction – Lower Loss Severity Retention To retain in full or part of the risk Chapter 1 Undertaking Risk Intorduction to Insurance and Risk Management
- 14. Transfer To transfer the risk to another individual or organization either by o Contractual Agreements – insurance, derivatives, diversification strategies etc. o Corporatizing – converting the sole proprietor/partnership business into a company from an organization Chapter 1 Undertaking Risk Intorduction to Insurance and Risk Management
- 15. Summary Risk is a condition in which there is a possibility of an adverse deviation from a desired outcome that is expected or hoped for Uncertainty refers to a state of mind characterized by doubt, based on the lack of knowledge about what will or what will not happen in the future Perils refer to the immediate causes of loss Hazards are the conditions that increase the severity of loss or the conditions affecting perils Pure risk may be Personal, Property or Liability Chapter 1 Undertaking Risk Intorduction to Insurance and Risk Management
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