Dr. James Kallman, ARM 5-1

AdvancedPowerPointPresentation

©2009 The National Underwriter Company

Dr. James Kallman, ARM 5-2

This Advanced PowerPoint Presentation accompanies the “Tools & Techniques of Risk Management & Insurance” textbook. Each of the 28 chapters in the textbook are presented here in the following sections:

OutlineKey conceptsMajor sectionsChapter summary

©2009 The National Underwriter Company

©2009 The National Underwriter Company Dr. James Kallman, ARM 5-3

Contents

Techniques of Risk Management & InsuranceCh 1 Introduction to Traditional Risk Management……………1-5

Ch 2 Enterprise Risk Management…………………………….2-1

Ch 3 Risk Assessment: Identification…………………………..3-1

Ch 4 Risk Assessment: Quantification…………………………4-1

Ch 5 Overview of Risk Treatment Alternatives………………. 5-1

Ch 6 Non-insurance Transfer of Risk…………………………. 6-1

Ch 7 Insurance as a Risk Transfer Mechanism……………….7-1

Ch 8 Overview of Alternative Risk Transfer Techniques……..8-1

Ch 9 Global Risk Management…………………………………9-1

Ch 10 Loss Control Techniques………………………………..10-1

Ch 11 Emergency Response Planning………………………..11-1

Ch 12 Business Continuity Planning…………………………..12-1

Ch 13 Claims Management……………………………………..13-1

Ch 14 Monitoring Claims for Financial Accuracy……………..14-1

Ch 15 Insurance Companies and Risk Management………..15-1

Ch 16 Working with an Agent or Broker……………………….16-1

©2009 The National Underwriter Company Dr. James Kallman, ARM 5-4

Contents

Tools of Risk Management & Insurance

Ch 17 Commercial General Liability Insurance……………….17-1Ch 18 The Workers’ Compensation System………………….18-1Ch 19 Commercial Property Insurance………………………..19-1Ch 20 Directors and Officers’ Liability Insurance……………..20-1Ch 21 Employment-Related Practices Liability Insurance…..21-1Ch 22 Business Automobile Insurance………………………..22-1Ch 23 Crime Insurance………………………………………….23-1Ch 24 Capital Markets Risk Transfer Tools…………………..24-1Ch 25 Loss Control Tools……………………………………….25-1Ch 26 The Certificate of Insurance…………………………….26-1Ch 27 Surety Bonds……………………………………………..27-1Ch 28 Claim Reviews……………………………………………28-1

©2009 The National Underwriter Company Dr. James Kallman, ARM 5-5

Chapter 5Overview of Risk Treatment Alternatives

Outline

• What is it?• The Options• Decreasing the Cost of Risk• Advantages and Disadvantages• Chapter Summary

©2009 The National Underwriter Company Dr. James Kallman, ARM 5-6

Chapter 5Overview of Risk Treatment Alternatives

†

What is it?

• There are four fundamental risk financing treatment alternatives:

• Avoidance

• Non-insurance Transfer (contractual)

• Retention

• Insurance Transfer

• The above order reflects costs

• Selecting the best alternative is subjective

• Consider the risk philosophy

• Consider available assets

† - Chapter 10 Covers Loss Control Alternatives

©2009 The National Underwriter Company Dr. James Kallman, ARM 5-7

Chapter 5Overview of Risk Treatment Alternatives

The Options

• Avoidance

• Perform a cost/benefit analysis

• Decide if the risk is worth the reward

• Non-insurance Transfer

• Using contracts to shift legal responsibility

• Examples:

• Hold Harmless agreement

• Indemnification agreement

• Additional Insured provision

• Lease

(Chapter 6 provides details of non-insurance contracts)

©2009 The National Underwriter Company Dr. James Kallman, ARM 5-8

Chapter 5Overview of Risk Treatment Alternatives

The Options

• Retention

• Appropriate for small, frequent, predictable losses

• Techniques:

• Insurance policy deductible

• Pure captive

• Risk retention group

• rent-a-captive

• Insurance Transfer

• Consider all other options before using insurance• Insurance is expensive – 35% of premium O Overhead

• Use insurance to cover catastrophic losses

(Chapter 7 provides details of insurance contracts)

©2009 The National Underwriter Company Dr. James Kallman, ARM 5-9

Chapter 5Overview of Risk Treatment Alternatives

The Options

Supplement

• Adding risk control measure

• Prevention• Reduction

• Risk control measures can be adopted for non-pecuniary

reasons

©2009 The National Underwriter Company Dr. James Kallman, ARM 5-10

Chapter 5Overview of Risk Treatment Alternatives

The OptionsSupplement

Risk Management Solution Tree

©2009 The National Underwriter Company Dr. James Kallman, ARM 5-11

Chapter 5Overview of Risk Treatment Alternatives

Decreasing the Cost of Risk

• Loss Prevention and Reduction

• Loss control decreases the cost of risk

• Retention provides the incentive for loss control

•Select a portfolio of the four risk

financing alternatives

• First use loss control

• Then balance the costs

of risk financing techniques

• Use fig. 5.1 to make risk

financing decisions

©2009 The National Underwriter Company Dr. James Kallman, ARM 5-12

Chapter 5Overview of Risk Treatment Alternatives

Advantages and Disadvantages

+ Can create a complete risk management program

+ Prepares for hard market conditions

+ Enables flexible risk financing

- Requires time to analyze costs/benefits

- Advocating avoidance O loss of credibility

©2009 The National Underwriter Company Dr. James Kallman, ARM 5-13

Chapter 5Overview of Risk Treatment Alternatives

Chapter Summary

• What is it?4 Techniques to finance risksConsider the risk philosophy and available assets

• The OptionsAvoidance. Non-insurance Transfer, Retention, Insurance Transfer, Prevention, and Reduction

Decreasing the Cost of Risk

Use loss control to decrease risk financing costs

Select a portfolio of the four risk financing techniques

• Advantages and Disadvantages

Prepares a complete, flexible, program for any conditions

Requires time for analysis, use avoidance prudently