Question

REVIEW QUESTIONS 1. What is the meaning of risk management? 2. Explain the objectives of risk management both before and after a loss occurs. 3. Describe the steps in the risk management process. 4. a. Identify the sources of information that a risk manager can use to identify loss exposures. b. What is the difference between the maximum pos- sible loss and probable maximum loss? 5. a. Explain the meaning of risk control. b. Explain the following risk-control techniques. 1. Avoidance 2. Loss prevention 3. Loss reduction 6. a. Explain the meaning of risk financing. b. Explain the following risk-financing techniques 1. Retention 2. Noninsurance transfers 3. Insurance 7. What conditions should be fulfilled before retention is used in a risk management program? 8. a. What is a captive insurer? b. Explain the advantages of a captive insurer in a risk management program.

The answers to all 10 questions.

Answer 1

Answer(1): Risk management- It is the study of managing and minimizing the risk in the business. Risk is uncertainty. Risk management is the process of identify and evaluate the risk and implement the strategies to mitigate the risk. It is the forecasting of risk on the basis of some calculations and tools so that risk can be prioritized and minimized or removed. Risk management is applicable in many cases, for example; business, investment in mutual funds, equities and derivatives, new project, insurance etc. Risk management is everywhere in the world. Risk management should be good and on time, inadequate risk management can lead to some bad consequences to the company.

Answer(2): Objective of risk management- These are as following:

Minimizing risk and losses- Primary motive of risk management is to minimize the risk for business or for investor. Risk can be of many types, risk differs business to business. Risk can be controllable or uncontrollable. Systematic risk is uncontrollable while unsystematic risk is controllable.

Maximizing return and profit to organization and investors- When risk is minimized, company gets higher return. We all know that no risk, no gain but to minimize risk, companies make strategies and implement it so that profit can be increased.

Answer(3): Process of Risk management- There are following steps in risk management:

1. Identification of risk- Firstly risk is identified, it differs business to business and investment to investment.
2. Risk Analysis and Evaluation- After identification of risk, risk is evaluated, its consequences and effect on the business and other area, are evaluated. Type of risk is analyzed. Company can further take the decision whether the risk is acceptable or not.
3. Risk mitigation- Company always try to minimize the risk based on certain strategies and techniques. Companies develop the plan to minimize the high ranked risk first.
4. Risk monitoring- After minimizing risk, it is seen that risk came down or not?, the risk mitigating techniques really worked or not?

Answer(9) (a): Self insurance- As the name suggests, self insurance means, keeping some money aside for any accident in the future. In self insurance, insurer does not take any insurance plan from any company rather he keeps his money and makes a pool and uses it for any emergency.

(b): Risk retention group- This is a state insurance company that minimizes the risk or commercial business and Government organizations. It was created by Federal liability risk retention Act under Federal law 1986. These are different from traditional insurance companies. Risk retention group is owned by the members of the group.

Note: Please repost the remaining questions in another question as minimum four questions are to be answered at a time as per the policy. Thank You