Chapter # 1 Risk & Its Management

Chance
Probability

Uncertainty
Risk

Classification of Risk
The word risk is used to indicate financial risk or the uncertainty of financial loss. Pure & Speculative Risk Fundamental & Particular Risk

Only the pure & particular risk is covered by insurance.

Risk Management
The control & management of pure risk is known as Risk Management. It has three steps:
discovering the sources of risk Evaluating the impact over person or business if the loss should occur Selecting the most effective techniques to deal with the risk

Retention of Risk
Unawareness Remote Risk Set aside fund for facing risk Status of person or business

Risk Prevention
Risk prevention means both risk elimination & risk reduction. Prevention deals with:
Eliminating or reducing the factors that may cause a loss Minimizing the loss when it occurs when prevention method is not fully effective.

Minimization of Risk
Detecting the adverse occurrence when it occurs and then attempting to eliminate it Minimizing the loss after the adverse occurrence has happened

Approaches of Prevention
Engineering Approach Human Approach

Statistical Approach
Educational Approach Enforcement Approach

Insurance
Individuals & firms can transfer risk to others and pool risk with others. By accepting risk of others, the insurers clearly assumes a risk.

Risk Reducing Techniques

Increased knowledge Pooling Loss prevention Financial capacity Further transfer of risk