Risk Management

Mind Map by TimTim, updated more than 1 year ago
Created by TimTim over 4 years ago


Identifying risks, dealing with risks, uninsurable risks

Resource summary

Risk Management
1 Overview
1.1 Possibility of incurring a loss
1.2 Long-term effect vs short-term inconvenient
1.3 Individual vs Business
1.4 Insurable vs Uninsurable
1.5 Careful planning may reduce the change of occurrence or reduce its impact
2 Types
2.1 Economic
2.1.1 Result in financial loss
2.1.2 Categories Personal Health, personal well-being Property Loss of personal or business property Liability Harm or injury to other people or their property because of your actions
2.2 Non-economic
2.2.1 Result in inconvenience
2.2.2 Examples Late for school Embarrassed but no economic impact Late for work May result in penalty or loss of job, economic risk
2.3 Pure
2.3.1 loss only, no opportunity for gain
2.3.2 Severe weather such as typhoon may result in business close down and will reduce sales
2.4 Speculative
2.4.1 Either gain or loss
2.4.2 Examples Investment in business Invest in Option or Future
2.5 Controllable
2.5.1 Can be reduced or eliminated by actions Prevent loss from theft by installing a security system Install a tracking device on gas-tank truck to reduce the chance of loss because gasoline gets stolen
2.6 Uncontrollable
2.6.1 Cannot be reduced by actions Century storm is unpredictable and little can be done to reduce the lost
2.7 Insurable
2.7.1 Exchanges the uncertainty of a possible large financial loss for a certain smaller payment Losses are predictable and a large number of people face similar risk Insurance Provide financial protection Losses usually are more than financial Recovery rather than financial interest Need quantification to claim Basics Insured person or business Insurer (policy owner) who take on certain economic risks and to pay for losses if they occur Insurable interest, i.e. the right for the policy owner to buy insurance for the insured Insurability, i.e. the quality of the insured Policy holder, i.e. the person or company buying the policy Insurance policy, i.e. the document which states the condition Premium, i.e. amount to pay for the coverage Claim, i.e. request for payment for a loss Beneficiary, i.e. who gets the business from the policy Insurable items for business Personnel Keyman Life insurance Employee Health insurance Disability insurance for worker's compensation Property (assets) Commercial property insurance Vehicle insurance Operation Business interruption insurance Third party liability insurance Insurance for Construction Project Performance bond, demand bond, tender bond Contractor All Risk Insurance, Employee Compensation Insurance Levies
2.8 Uninsurable
2.8.1 Not common or impossible to predict the amount of loss Circumstances Economic conditions Downturn in the economy Monitor economic changes Consumer demand Understand consumer behavior Competitors' actions Marketing Pricing Promotion Technology changes Local factors Geographical facilities Political community Laws Regulations Taxes Infrastructure of a local community Business operations High cost Low morale Poor customer image Maintain corporate image Lack of training Staff development and promotion Poor management Poor equipment maintenance Regular maintenance and inspection Accidents and injuries
3 Ways to dealing with risks
3.1 Avoid
3.1.1 Experience
3.1.2 Planning
3.1.3 Decision based on likelihood of risk or the amount of loss
3.2 Transfer
3.2.1 When risk is too great to assume but cannot be avoided
3.2.2 Examples Credit transfer to bank or credit card company Distribute products through resellers Partner with experienced research institution through joint venture for research or project development
3.3 Insure
3.3.1 Same type of risk also faced by others
3.3.2 Reasonable or limited losses
3.3.3 Statistically predictable occurrence
3.3.4 Pay a small amount for insurance that will cover the losses of the business Fire Shipping Public Liability
3.4 Assume
3.4.1 Risks that are taken by the company Usually measurable and the extend is not serious
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