Risk Management Quiz 2 Mccloskey

Risk Management

specialized branch of financial management

Steps in a Risk Management Process

1. identify exposures to loss

2. evaluate exposures to loss

3. identify possible alternatives

4. select among the alternatives

5. implement the selection

6. re-evaluate periodically the chose strategies

Loss exposure

possibility of a financial loss that a particular entity faces as the result of peril striking a thing of value

-anything that could go wrong that'll cost money

-failure to identify this can lead to bankruptcy

How to identify exposures

1. inspections of plant and facility (walk arounds)

2. contract analysis

3. look at past information

4. share loss information with other similar firms through trade associations

5. checklists/standardized surveys from insurance companies

6. flow chart approach

7. ask employees/managers in the firm

8. financial statement approach

Property Loss Exposure

-Real property (land and building)

-Personal property

(tangible: equipment furniture, what's inside the building)

(intangible: goodwill, patent, trademark, copyright)

Net Income Loss Exposure

-Business Interruption

-a firm suffers a primary loss as the result suffers a secondary loss that results indirect expenses

-decrease in revenue and increase in expenses

Personnel Loss Exposure

A firm has a key employee who suffers personal loss

ex. death, disability, illness

firm suffers:

-revenue decrease

-sales are down

-decisions are not made

Intentional behavior

assault, libel, slander

Unintentional behavior

negligence or carelessness (lyft or pub webb)

Negligence

failure of a person to exercise the proper degree of care

Property Losses (PD)

-relatively simple to calculate

-tangible

Bodily Injury (BI)

-special damages

-medical expenses

-loss of income

-easy to calculate but not simple

Measure bodily injury damages

-compensate for intangible losses

-paid for an inconvenience of pain and suffering

-mental anguish (ptsd, depression, woman in elevator)

-depends on who you are (janitor and surgeon)

Defenses to liability

-assuming the risk by the injured party

ex. skydiving or attending a hockey game

RES IPSA LOQUITOR

-"the thing speaks for itself"

-presumption of negligence on part of defendant

-defendant has to prove they aren't guilty

requirements:

-defendant exclusively controls tool/equipment

-wouldn't occur unless negligence usually

-injured party doesn't contribute to loss (dentist removes wrong tooth)

Vicarious liability

-one person becomes legally liable for the negligent behavior of another

-employers are held responsible for actions of their employees while they are employees

-ex. TA punches you in office hours (can sue temple) vs. at a bar (can't sue temple)

Joint and Several liability

-negligence of two or more parties contributes to the injury or damage

-injured party may recover entire amount of compensation from any negligent party who can pay

-"search for deep pockets"

-ex. nightclub sued budweiser, home depot, speaker company because they had money

Product Liability

-product is negligently made or improperly designed

-proper warning is not give to consumer

-manufacturers of faulty product that injures someone or damages property may be legally liable

-seinfeld example

-coffee cup lid (mcdonalds)

Product Liability Losses

-cost of defending and paying claims for injury

-cost of recalling any batches of products suspected of being defective

-damage to your name

Premises Liability

-owner or tenant may be held liable for damages if someone is injured

-if the property of others is damaged in or because of premises

trespasser

-someone who comes without right or consent

-only obligated to abstain from doing intentional harm

lincensee

-comes to property with the knowledge of owner (jehovah's witness, mailman)

-no purpose or benefit to owner

-must warn of any hidden dangers

Social guest/invitee

-been invited for some purpose

-customer in store

-nothing can happen to them!!!

-must keep premises safe so no harm comes

-everyone on lease is responsible

animal liability

-exotic animals (nondomesticated pets)

-strict liability

-ex. even if a trespasser gets attacked you're still liable

Traditional Risk Management (TRM)

-4 loss exposure (property, net income, personnel, liability)

-Silo approach

-Pure Insurable Risks

Silos

several departments within an organization do not want to share information with other individuals in the same firm

Enterprise Risk Management (ERM)

-manage risk and seize opportunity

-risk based approach to managing an enterprise

-very strategic, scientific approach

1. hazard risks

2. financial risks

3. operational risks

4. strategic or business risk (SWOT)

TRM vs. ERM

TRM

-TRM is a silo or departmentalized approach

-TRM focuses mainly on hazard type risks (flood, fire, etc)

-Financial type risks handled by CFO, finance, or accounting

-no teamwork

ERM

-integrated approach

-occurs at enterprise level instead of individual departments

-risk management activities heavily impact business decisions

-designed to facilitate comparison and evaluation

-teamwork

bailee

-an entity who receives property from another under a contract of bailment

-interest for the bailee is a legal liability to return or cost to replace the property

-possesses but does not own

ex. tennant interest. responsible for returning property in reasonable condition