1、Introduction to Risk and Insurance,Chapter Outline,The Concept of RiskRisk ManagementManaging Personal Risks Through Insurance,The Concept of Risk,Speculative risk involves three possible outcomes:loss,gain,or no change.For example,when you purchase shares of stock.,Pure riskinvolves no possibility
2、of gain;either a loss occurs or no loss occurs.An example is the possibility that you may become disabled,This possibility of financial loss without the possibility of gain-pure risk-is the only kind of risk that can be insured,Risk Management,Avoiding RiskControlling RiskAccepting RiskTransferring
3、Risk,Avoiding Risk,The first, and perhaps most obvious, method of managing risk is simply to avoid risk.,Controlling Risk,To control risk by taking steps to prevent or reduce losses,Accepting Risk,To accept, or retain, risk.To accept risk is to assume all financial responsibility for that risk.Self-
4、insurance is a risk management by which a person or business accept financial responsibility for losses associated with special risks.,Transferring Risk,When you transfer risk to another party, you are shifting the financial responsibility for that risk to the other party,generally in exchange for a
5、 fee.The most common way is to purchase insurance coverage.,About Insurance,Policy is the written document that contains the term of the agreement between the insurance company and the owner of the policy Policy benefit is a stated amount of money an insurance company agrees to pay under an insuranc
6、e policy when a specific loss occurs.Premium保险费 is a specified amount of money an insurer charges in exchange for its promise to pay a policy benefit when specific loss occurs.,Three type of Risk,Property damage riskLiability riskpersonal risk,Managing Personal risk Through Insurance,Characteristics
7、 of Insurance RisksInsurability of Specific Risks,Characteristics of Insurable Risks,The loss must be occur by chance.The loss must be definite.The loss must be significant.The loss rate must be predictable.The loss must not be catastrophic to the insurer.,The type of Insurance Policy,A contract of
8、indemnity赔偿 is a insurance policy under which the amount of the policy benefit payable for a covered is based on the actual amount of financial loss that results from the loss,as determined at the time of loss.,A valued contract specifies the amount of the benefit that will be payable when a covered
9、 loss occurs,regardless of the actual amount of the loss that was incurred.,Insurance of Specific Risks,Applicant is the person or business that applies for an insurance policy.Insured is the person whose life or health is insured under the policy.When one person purchases insurance on the life of a
10、nother person, the policy is known as a third-party policy.Beneficiary is the person or party the policyowner named to received the policy benefit.,Insurability of specific RiskInsurable interest requirement,Insurable interest:when the policyowner is likely to benefit if the insured continues to liv
11、e and is likely to suffer some loss or detriment if the insured dies,the owner of a life insurance policy has an insurable interest in the insured.,Insurable of specific RisksAssessing the degree of risk,Antiselection(adverse selection) those individuals who believe they have a greater than average
12、likelihood of loss tend to seek insurance protection to a greater extent than do those who believe they have a average or a lee than average likelihood of loss.,Insurable of specific RisksAssessing the degree of risk,Moral hazard is the likelihood that a person may act dishonestly in the insurance t
13、ransaction.,Insurable of specific RisksAssessing the degree of risk,Standard risksubstandard riskdeclined riskpreferred risk,You should be able to,Distinguish between speculative risk and pure risk.List several ways to manage financial risk.Identify the five characteristics of insurable risk. Insurable interestantiseletion,
