Title: 1. Introduction to Risk Management and Insurance
11. Introduction to Risk Management
and Insurance
- Dr. Jan-Juy Lin
- Dept. of Risk Management and Insurance
- ETP course, CNCCU
2Introduction
- Course Syllabus
- Importance of an international perspective
- Risk management and economic growth
- Language of risk and insurance internationally
- Environment for risk and insurance
internationally - Question Discussion
3 4Syllabus Course Design
- Objective of this course is to equip the
students with a broad knowledge of risk
management and insurance. -
- Institutional details with emphasis on current
practices in Taiwan will also be presented. - Primary goal is to stimulate critical thinking
and promote problem solving skills for applying
general concepts to new sets of problems, new
types of risks, and new institutional structures.
5Syllabus Expected Learning Outcome
- Understand a broad perspective of risk management
and insurance covering not only traditional but
also new types of risk management. - Understand insurance contracts and institutional
features of the insurance industry. - Understand the effects of and the rationale for
public policies that affect risk management of
businesses and individuals. - Possess a conceptual framework for making risk
management and insurance decisions to increase
business value and individual welfare. - Think critically and analytically solve problems
that confront business managers and individuals.
6Syllabus Teaching Methods
- A student-centered approach will be adopted by
this course. Not only this course primarily
utilizes lectures but also encourages class
discussion. - Student-instructor dialogue is especially
encouraged. - Students are ultimately responsible for their
own progress by being active and critical
participant in the learning. - It is required that all the students shall have
Pre-Class preparation for the assigned reading
materials.
7Syllabus Teaching Methods
- Pre-Class preparation is required
- In-Class cold and warm calls occasionally
- for grading participation
- No perfect English skill is needed
- Everyone encouraged to speak and
- discuss
- Happy learning, happy gaining your credits
8Syllabus Textbook and Grade Determination
- Required Textbook Harold D. Skipper W. Jean
Kwon, Risk Management and Insurance Perspective
in a Global Economy, Blackwell Publishing, 2007
(???Taipei WILEY ????). - Dictionary for Reference???????? (Taiwan
Insurance Institute), English-Chinese Dictionary
of Insurance, ??????, 2006 - Grade Determination
- Class Participation 40
- Mid-term Exam 30
- Final Exam 30
9Syllabus Course Schedule
- Orientation
- Introduction to Risk Management and Insurance
- The Nature and Importance of Insurance
- Life Insurance
- Non-Life Insurance
- Reinsurance
- Regulation and Taxation in Insurance Market
- Mid-term Exam
10Syllabus Course Schedule
- Enterprise Risk Management
- Internal Loss Financing
- External Loss Financing
- Risk Management for Catastrophes
- Financial Services Integration
- Future Perspective to Risk Management and
Insurance - Final Exam
11- The Importance of an International Perspective
12The Importance of International Perspective
- Decisions about how to deal with some risky
activities and processes have become incredibly
complex. - The world is getting smaller!
- In most markets, a significant proportion of
goods and services competes directly or
indirectly with those of other countries. - The proportion of cross-border trade continues to
grow worldwide. - See Figure 1.2
13World Merchandise Trade and GDP (Figure 1.2)
Source WTO
14The Importance of International Perspective
- The importance of foreign direct investment
(FID) - FDI inflows tend to grow at rates greater than
merchandise trade - Competitiveness is heightened as price
differentiation becomes a less feasible
alternative to improved operating efficiency.
Even firms not directly involved in international
activities are affected. - In a global economy, the way risk is dealt with
naturally differs to suit each countrys
sociocultural, demographic, political, and
economic circumstances.
15- Risk Management and Economic Growth
16Growing Importance of Risk Management
- A rise in the number of high-value (highly
protected) risks (Taipei 101) - Resource concentration
- Pollution as another externality
- QA Nuclear Leakage Pollution,
- Smelly bean curd, smell pollution
case, - Air pollution in mainland China
17Risk and Economic Development (Figure 1.1)
18Growing Importance of Risk Management
- Risk management has assumed greater importance as
its scope continues to expand. - In the past, its application was thought of as
being limited mainly to operational (e.g.,
manufacturing, marketing) issues. - Today, it finds application in minimizing
financial risks to business and in helping
governments resolve public policy issues.
19Role of Risk Management in Economic Growth
- By reducing long-term financial variability, risk
management can render firms more competitive. - From a macroeconomic standpoint, risk management
techniques can reduce the number of commercial
and industrial enterprises that would otherwise
become insolvent.
20Role of Risk Management in Economic Growth
- Effective loss control measures can reduce the
frequency and severity of work-related injuries
and illnesses, work interruption, and other
causes of economic losses. - It can reduce production costs, which in turn can
make goods and services available to consumers at
lower cost.
21- The Language of Risk and Insurance Internationally
22Defining Risk and Insurance
- International risk and international
insurance commonly refer to - (1) unintended outcomes and
- (2) insurance transactions that transcend or
cross national boundaries. - International risk can also flow from the
consequences of international business
activities. - The importance of the concepts on both a
cross-border and comparative basis.
23Country Classifications
- By stage of economic development
- Developed market economies
- Also known as high-income countries, advanced
countries, economically advanced countries,
industrialized countries, the north, and the
first world. - Newly industrialized economies
24Country Classifications
- Developing economies
- Also known as underdeveloped countries,
undeveloped countries, low- (or middle-) income
countries, the south and the third world. - Emerging markets
- Economies in transition
25Country Classifications
- By stage of economic development (continued)
- Least developed countries
- Centrally planned economies
- Also known as planned economies, Communist
countries, and the second world.
26Worlds Distribution of GDP, Trade and Population
27Country Classifications
- By membership in international organizations
- Global organizations
- The United Nations
- The International Monetary Fund
- The World Bank
- The World Trade Organization (WTO)
- The World Health Organization (WHO)
28Country Classifications
- By membership in international organizations
(continued) - Regional organizations
- The Organization for Economic Cooperation and
Development - The European Union
- The North American Free Trade Agreement
- Association of Southeast Asian Nations
- Asia-Pacific Economic Cooperation
- Southern Cone Common Market
- Common Market for Eastern and Southern Africa
29OECD Member Countries
30E.U. Members and Applicants
31Risk Classifications
- Risk
- Loss exposure
- Peril
- Hazard
- Physical hazard
- Moral hazard
32Risk Classifications Risks
- Pure risk (Hazard Risk)
- Financial risk (Speculative Risk)
- Market risk
- Interest rate risk
- Exchange rate risk
- Other systematic risk
- Credit (counterparty) risk
- Price risk
33Risk Classifications Risks
- Operational (internal) risk
- Personal risk
- Personnel risk
- Property risk
- Liability risk
- Concentration risk
- Reputational risk
- Strategic risk
34Risk Management Process
- The process
- Risk analysis
- Identification and evaluation of the possible
outcomes associated with events or activities - Risk control
- Exploration of techniques to control adverse
outcomes - Risk financing
- How to finance the costs of adverse outcomes that
occur
35Risk Management Process
- The view of risk management is changing
- A fragmented approach to the management of risk
is less effective and efficient than an
integrated approach that involves all the risks
to which an entity is exposed. - Enterprise Risk Management (ERM)
- Hazard Risk Financial Risk
36Insurance Classifications
- Social vs. private insurance
- Life vs. nonlife insurance
- Nonlife insurance also known as general
insurance, property-casualty and
property-liability insurance - Life insurance dealing with
- Death
- Living a certain period
- Incapacity (disability and long-term care need)
- Injury or incurring a disease
37Insurance Classifications
- Personal vs. commercial insurance
- Industrial insurance
- Large risks and mass risks in the E.U.
- Direct insurance vs. reinsurance
- Direct (writing) insurer, primary insurer
- Direct premium
- Reinsurer, assuming company
- Reinsurance premium
- Retrocession and retrocessionaire
38The Changing Environment and Risk Management
39 40Discussion Question 1
- Is an appreciation for international events
important to students of risk management and
insurance, even if they intend to work
exclusively for domestic firms with no
international operations? - Case Study WTC 911 Terrorism
41Discussion Question 2
- Is the study of risk management becoming more or
less important in your country? - Case Study
- Chi-Chi 921 EQ, Typhoon, Beijing Olympic
Game, FIFA World Cup
42Discussion Question 3
- What special risks would you expect multinational
corporations to encounter that purely national
firms ordinarily would not encounter? - Speculate about some of the ways of dealing with
such special risks.
43Discussion Question 4
- Can you comprehend the following social insurance
in terms of the coverage in Taiwan ? - National Health Insurance Scheme
- Compulsory Automobile Liability Insurance
- Student Group Insurance
44Discussion Question 5
- What do you think are the prerequisites for the
development of insurance in the following
countries? - China
- India
- Russia
- Saudi Arabia