Question

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?

answers to #4, 7, 8 & 10

Answer 1

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1 a. Risk managers can identify the risk through following exposure 10 a. Advantages Questionnaire Physical Inspection Financial statement Analysis historical loss data Changes in industry dynamics Market as whole Better Cashflows Expense Savings Risk of Losses transfer Reduced Operating downtime when losses happens Business Continuity Loss or damage prevention b. Probable Maximum Loss (PML) is the maximum loss that an insurer would be expected to incur on a policy. Probable maximum loss (PML) is most often associated with insurance policies on property, such as fire insurance. Maximum Possible Loss (MPL) represents the worst loss that could possibly occur due b. Disadvantage Adds on expenses when business are looking ways to save money All types of losses are not covered Long legal formalities takes time to get compensation Sometimes premium amount is really high Ambiguity 7 Retention can be used in following cases No other alternative for treatment is available The worst possible loss is not too much or not so serious Losses can be predicted 8 a. Captive insurer is an insurance company owned by its parent company for the purpose of insuring the parent company's loss exposures. b. Do away the difficulty of parent company in availing certain insurance policies from commercial insurer Tax deduction benefit for Parent firm Asset protection from the claims of creditors: business or personal Direct access to reinsurance market Reduced operating cost Investment income Control over claims Negotiating Leverage with underwriters Better Cashflows