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A Case Study in Risk Management by Jerry S. RosenbloomReview by: S. Travis PritchettThe Journal of Risk and Insurance,

Vol. 40, No. 4 (Dec., 1973), pp. 621-622Published by: American Risk and Insurance AssociationStable URL: http://www.jstor.org/stable/251940 .Accessed: 11/06/2014 17:24

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Publications 621

many to be a confusing and perhaps con-tradictory area of insurance law.

This reviewer found the investment ofabout three months' reading time wellworthwhile and well rewarded. Perhapsthis statement says more about his read-ing skill level and the state of his ignor-ance of insurance law than about Profes-sor Keeton's book. It seems safe toconclude that this book would be animportant addition to the reference col-lection of any individual teachinginsurance courses.

A CASE STUDY IN RISK MANAGE-MENT. By Jerry S. Rosenbloom. NewYork: Appleton-Century-Crofts, Educa-tional Division, Meredith Corp., 1972. 160Pages. $7.95.

Reviewer: S. Travis Pritchett, AssociateProfessor of Finance and Insurance, Uni-versity of South Carolina-Columbia.

The purpose of this study was to dis-

cover and describe practical guidelinesor methods to be employed in theeconomical management of risks for abusiness organization. It represents aworthwhile addition to the literature inthe risk management field on the howsand whys of interest to anyone, rangingfrom students to risk managers to topmanagement personnel, needing infor-mation on the management of pure risk.

The study excludes risks associatedwith foreign operations and risks of thepersonnel type. Undoubtedly both typesdeserve study. By excluding personnelrisks the study follows the traditionaldichotomy between property and liabil-ity insurance, and life and health insur-ance. Therefore, from the insuranceprofessor's viewpoint, the book is better

suited as supplementary reading for acourse in property and liability insurancewith a risk management emphasis thanin a risk management course, whichencompasses all types of pure risk.

In writing on practical aspects of riskmanagement, Dr. Rosenbloom was for-tunate to have the counsel and activeinvolvement of ten members of the Re-search Committee of the PhiladelphiaChapter of Chartered Property andCasualty Underwriters. There should beno inconsistency between good theoryand good practice and this book certainlyrepresents an attempt to merge the two.

The organization of the book is peda-gogically sound in that the first chapteris largely devoted to the theoreticalconcepts of pure risk and the manage-

ment of pure risk, while subsequentchapters present information on which tobase sound risk management decisionswithout implying what the correctdecisions are.

Chapter 1 represents a good summaryof previously existing literature on thenature of pure risk, along with a descrip-tion of the function and role of the riskmanager in an organization. Two techni-

cal points in Chapter 1 bothered thisreviewer. The first point was the defini-tion of maximum probable loss asthe best estimate of the actual loss thatwould occur if the event happened andnormally is measured by frequency timesseverity. ' The first part of the definitionis acceptable; the latter part, however,produces a mathematical product whichis more commonly called the annual ex-pected loss. It is also unfortunate thatthe study does not explain the use of boththe maximum probable loss and expectedloss.

The second questionable statement inChapter 1 is: Other reasons for self-insurance include the possible tax ad-vantage, since losses are deductiblethough premiums are not, as in insurance,

placed with commercial insurers . . .I

Further discussion of income tax aspectsof self-insurance costs versus insurance

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622 The Journal of Risk and Insurance

premiums demonstrates an understandingof the tax treatment of self-insured lossesand expenses. What is not clear is whyRosenbloom listed this treatment as apossible tax advantage. Under normalcircumstances, deduction of irregular self-insured losses at depreciated book valueswould be viewed as a disadvantage ofretention of property and liability risks.

Chapter 2 describes the current statusof the chemical industry and the fore-casted industry trends that have riskmanagement implications. The discussionsmoothly shifts to an actual, medium-

sized chemical company, using SpecialChemical Company as a pseudonym. In-formation on company history, asset lo-cations and values, production, market-ing, and finance adequately provide thebackground necessary to deal with therisk management problems of this par-ticular firm. Chapter 3 complements thedescription of the firm by stating itsoverall corporate objective (i.e., to em-ploy capital assets, technology, and skillsto produce an acceptable return oninvestment )3 and by giving a thoroughdescription of the specific risk manage-ment policy of the Special ChemicalCompany.

This approach allows a comparison ofthe actual policy statement on risk man-agement with the normative treatment of

risk and risk management techniquesgiven in Chapter 1. For example, the riskmanagement policy can be examined inthe light of its consistency with bothChapter l's definition of risk manage-ment as . . . the function of executivedirection over all phases of pure riskfaced by the business firm that couldaffect the ultimate profit of the firm 4 ndthe overall objective of the specific firm

in this case study.Chapters 4 through 8 provide details

on the following types of potential losses3 Page 40.4Page 5.

at the Special Chemical Company:Property Damage Risks; Indirect or Con-sequential Risks; Crime Exposures;Liability and Workmen's CompensationExposures; and Contractual Exposures.Each chapter deals with a particular typeof potential loss and gives adequate verb-al description and data to allow a studentto work through the five steps in theprocess of risk management and decisionmaking. (Chapter 1 explains each stepin considerable detail.) Questions at theend of each chapter probe the subjectmatter of risk management sufficiently to

direct a student toward alternative solu-tions to the risk management problems ofthe Special Chemical Company. Thequestions serve the additional role ofmaking the material meaningful and ap-plicable to risk management situations inother organizations.

The concluding chapter emphasizesthe need for: overall coordination of theseveral risk management techniques; re-evaluation of risk management practiceto keep up with the dynamic environ-ment in which it operates; and standardsby which top management can appraisethe risk manager. The limitations andfuture of risk management as an indis-pensible function of business manage-ment are also discussed. A Case Study inRisk Management represents another

force to indicate that risk managementis an idea whose time has come. 5

LIFE INSURANCE, Eighth Edition. ByS. S. Huebner and Kenneth Black, Jr.Meredith Corporation (Appleton-Century-Crofts), New York, 1972, 902 pages withappendices.

Reviewer: Peter R. Kensicki, Assistant

Professor of Finance, Ohio University.The Eighth Edition of Life Insurance is

overpowering. While there is more in-formation in the book than is required

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