(RMI) Risk Management and Insurance Module Overview

Risk Management and Insurance Module Overview

Introduction

risk management insurance title imageRisk is the chance of exposure to injury or loss. All of us face some level of risk every day. Loss of a cell phone, damage in a car accident, or theft of a laptop are all examples of risk we might face. As we deal with risk we have four choices: avoid risk, reduce risk, ignore risk, or transfer risk. In business, owners and managers strive to manage risk by determining both the likelihood of a specific risk and the monetary loss should the worst occur. If the likelihood and the monetary loss are both very low managers would probably ignore the risk or try to avoid it. As both the likelihood and monetary loss increase, managers will seek to reduce the risk or transfer it through purchasing insurance. This module will explore risk in business through determining how to analyze risk and develop a plan to manage risk for a business.

Essential Questions

  • What is risk and how is it managed?
  • What kinds of insurance does a business need?
  • What are some basic insurance concepts I need to understand?
  • How do I analyze risk in order to make insurance decisions?

Key Terms

  1. Risk -  situation involving exposure to danger
  2. Risk management - measures taken to prevent or manage a situation involving exposure to danger
  3. Insurance -  a risk management technique that involves the transfer of a risk to another party
  4. Policy holder - one who owns the insurance
  5. Policy premium - the payment to maintain insurance coverage
  6. Policy - a  contract between the insurer and the insured
  7. Probability - the likelihood that something will happen
  8. Claim - a demand or request for something considered one's due
  9. Coverage -  the extent of protection afforded by an insurance policy
  10. Deductible - amount paid out of pocket before insurance pays
  11. Insured - one who is covered by an insurance policy
  12. Insurer - company that offers the insurance
  13. Liability - obligation to pay
  14. Peril - serious and immediate danger
  15. Hazard - a danger or risk
  16. Insurable risk - Insurable risk is a risk that is random, definable, with a measurable loss, not illegal for which an insurance company can charge a reasonable premium
  17. Uninsurable risk - Uninsurable risk is a hazard or condition with a high probability of loss, or that is illegal

Module Minute

Risk is the likelihood or potential that a certain course of action will result in a loss of some sort. Risk has three components. First, there must be an event that might cause harm. Second, there must be an undesirable outcome. Finally, there has to be a probability that the risk will happen.  Some risk events have a high probability of happening, but our loss is so minimal we don't even try to manage it. Think losing socks in the washing machine. Other risks would cause great damage and loss, but the probability of the event taking place is so small we would ignore the event. Think of the possibility of a flood in a desert. In between those two extremes are all kinds of risk events that we might consider managing.

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