‫بسم هللا الرحمن الرحيم‬
‫دكتور‪ /‬عماد إسماعيل‬
‫أستاذ إدارة الخطر والتأمين المساعد‬
RISK MANAGEMENT
&
LIFE INSURANCE
CHAPTER 1
RISK IN OUR SOCIETY
MEANING OF RISK
risk is defined as
uncertainty concerning
the occurrence
of a loss
Objective Risk
&
SUBJECTIVE RISK
Objective Risk:
the relative
variation of
actual loss
from
expected
loss
Subjective Risk:
is defined as
Uncertainty
based on
a person’s
mental
condition or
state of mind
The law of large numbers
as the number of exposure
units increases, the more
closely the actual loss
experience will approach the
expected loss experience
Chance of loss
is defined as
the probability that an
event will occur
Peril
is defined as the
cause of loss
Hazards
is a condition that a hazard
creates or increases
the chance of loss
Hazards
Physical
hazard
Moral
hazard
Legal
hazard
Morale
hazard
Physical
hazard
is a physical condition that
increases the chance of loss
Moral
hazard
is dishonesty or character
defects in an individual that
increase the frequency or
severity of loss
Morale
hazard
is carelessness or
indifference to a loss
because of the existence
of insurance
Legal
hazard
refers to
characteristics of the legal
system or regulatory
environment that increase
the frequency or
severity of losses
BASIC CATEGORIES OF
RISK
Pure Risk &
Speculative
Risk
Enterprise
Risk
Fundamental Risk &
Particular Risk
Pure Risk
pure risk is
defined as a situation
in which are there
only the possibilities
of loss or no loss
Speculative Risk
Speculative risk is
defined as a situation
in which either profit
or loss is possible
It is important to
distinguish between
pure & speculative risks
for three reasons:
The First
private insurers typically
insure only pure risks
The Second
the law of large numbers
can be applied more easily
to pure risks than
to speculative risks
The Third
society may benefits from
a speculative risk even
though a loss occurs, but
it is harmed if a pure risk
is present & a loss occurs
Fundamental Risk
fundamental risk is
a risk that affects the entire
economy or large
numbers of people
or groups within
the economy
Particular Risk
particular risk is
a risk that affects
individuals & not the
entire community
Enterprise Risk
is a relatively new term that
Encompasses all major risks
faced by a business firm.
Such risks included pure risk,
speculative risk, strategic risk,
operational risk, & financial risk
Strategic Risk
refers to uncertainty
regarding the
firm’s financial
goals & objectives
Operational Risk
results from
the firms business
operations
Financial Risk
refers to the uncertainty
of loss because of adverse
changes in commodity prices,
interest rates,
foreign exchange rates,
& the value of money
TYPES OF PURE RISK
the major types of
pure risk that can
create great financial
insecurity include:
Personal
risks
Property
risks
Liability
risks
A) Personal risks
Personal risks are
risks that directly
affect an individual
There are four major
personal risks:
1- Risk of premature death
2- Risk of insufficient income
during retirement
3-Risk of poor health.
4-Risk of unemployment.
B) Property Risks
Persons owning property are
exposed to property risks
the risk of having property –
damaged or lost from
numerous causes
There are two types of
loss associated with the
destruction or theft of
property:
Direct
Loss
Indirect
or
Consequential
Loss
Direct loss
direct loss is defined as
a financial loss that results
from the physical damage,
destruction, or theft of the
property
Indirect or
Consequential
Loss
indirect loss is a financial loss
that results indirectly from
the occurrence of a direct
physical damage or theft loss
C) Liability Risks
Liability risks are of great
importance for several
reasons:
First,
there is no maximum upper
limit with respect to the
amount of the loss
Second,
a lien can be placed on your
income & financial assets
to satisfy a legal judgment
Finally,
legal defense costs can be
enormous
METHODS OF HANDLING
(MANAGING) RISK :
there are two categories of handling risk:
Risk
Control
Risk
Financing
Risk
Control
refers to techniques that reduce
the frequency & severity of losses.
Major risk-control techniques
include the following:
Avoidance
Loss Control
consists of two methods:
Loss
Prevention
Loss
Reduction
Risk
Financing
refers to techniques that
provide for the funding of
losses. Major risk-financing
techniques include the
following:
Retention
Non-insurance
Transfer
Insurance
A) RISK CONTROL
1- Avoidance
a business firm can avoid
the risk of being sued for
a defective product by not
producing the product.
Not all risks should be
avoided, however. For
example, you can avoid the
risk of death or disability
in a plane crash by refusing
to fly. But is this choice
practical or desirable?
2- Loss Control
Loss control consists of
certain activities that reduce
both the frequency & severity
of losses. Thus, loss control
has two major objectives:
- loss prevention
- loss reduction.
2/1- Loss prevention
aims at reducing the
probability (frequency)
of loss
the goal of loss prevention is to
prevent the loss from occurring.
2/2- Loss reduction
the second objective of loss
control is to reduce the
severity of a loss after
it occurs
loss control is highly
desirable for two reasons:
First,
the indirect costs of losses
may be large, & in some
instances can easily exceed
the direct costs
Second,
the social costs of losses
are reduced
B) Risk Financing
1- Retention
an individual or a business
firm retains all or part of
a given risk. Risk retention
can be either active or
passive
1/1- Active retention
means that an individual is
consciously aware of the risk
& deliberately plans to retain
all or part of it
Risk retention, however,
is appropriate primarily for
high-frequency, low-severity
risks.
risk retention should not be used to
retain low frequency, high-severity
risks, such as the risk of catastrophic
medical expenses, long-term
disability, or legal liability
2- Non-insurance Transfers
the risk is transferred to a
party other than an insurance
company
A risk can be transferred by
several methods, among
which are the following:
2/1- Transfer of risk by contracts
2/2- Hedging price risks
2/3- Incorporation of a business firm
3- Insurance
CHAPTER 2
REVIEW TERMS
Avoidance
‫تجنب الخطر‬
Chance of loss
‫فرصة الخسارة‬
Direct Loss
‫الخسارة المباشرة‬
Enterprise Risks
‫أخطار المنشآه‬
Exposure to loss
‫التعرض للخسارة‬
‫األخطار المالية‬
‫‪Financial Risks‬‬
‫أخطار عامة‬
‫‪Fundamental Risks‬‬
‫مسببات أخطار مساعدة‬
‫‪Hazards‬‬
‫المشتقات‬
‫‪Hedging‬‬
‫القيمة اإلقتصادية لإلنسان‬
‫‪Human Life Value‬‬
‫الخسائر غير المباشرة‬
‫أو التبعية‬
‫‪Indirect or‬‬
‫‪Consequential loss‬‬
‫التأمين‬
‫المؤمن عليه‬
‫المؤمن‬
‫( شركة التأمين )‬
‫‪Insurance‬‬
‫‪Insured‬‬
‫‪Insurer‬‬
‫قانون األعداد الكبيرة‬
‫‪Law of large numbers‬‬
‫مسببات خطر مساعدة قانونية‬
‫‪Legal Hazard‬‬
‫أخطار المسئولية‬
‫‪Liability Risks‬‬
‫الخسارة‬
‫‪Loss‬‬
‫التحكم فى الخسارة‬
‫‪Loss control‬‬
‫مسببات خطر مساعدة‬
‫شخصية إرادية‬
‫‪Moral Hazard‬‬
‫مسببات خطر مساعدة‬
‫شخصية ال إرادية‬
‫‪Morale Hazard‬‬
‫الخطر الموضوعى‬
‫أخطار خاصة‬
‫‪Objective Risk‬‬
‫‪Particular Risks‬‬
‫مصدر الخسارة‬
‫‪Peril‬‬
‫األخطار الشخصية‬
‫‪Personal Risks‬‬
‫مسببات خطر مساعدة طبيعية‬
‫‪Physical Hazard‬‬
‫وثيقة‬
‫‪Policy‬‬
‫الوفاة المبكرة‬
‫‪Premature Death‬‬
‫أخطار الممتلكات‬
‫‪Property Risks‬‬
‫األخطار البحتة‬
‫‪Pure Risks‬‬
‫اإلحتفاظ أو التحمل‬
‫‪Retention‬‬
‫الخطر‬
‫‪Risk‬‬
‫أخطار المضاربة‬
‫‪Speculative Risks‬‬
‫الخطر الشخصى‬
‫‪Subjective Risk‬‬
‫القسط‬
‫‪Premium‬‬