Slide MGT312 Slide06

Managing Property and
Liability Risk
Chapter 10

Risk
• Risk is uncertainty about the outcome of
event.
• Speculative risk exists in situations where
there is potential for gain and loss.
• Pure risk exists when there is no potential
gain, only loss.

Risk Management
• It is the process of identifying and
evaluating situations involving pure risk
to determine and implement the
appropriate means for its management.
• It is conducted before a loss occurs.

Risk Management Process
• Identify sources of risk (exposure).

• Estimate risk and potential losses.
• Choose how to handle risk.
• Implement risk management program.
• Evaluate and adjust program.

Insurance
• It is a mechanism for transferring and

reducing pure risk through which a large
number of individuals share in the
financial losses suffered by members of
group.
• To protect individuals, insurance company

receives premium.

Hazards
• Morale hazard exists when a person is
indifferent to a peril.
• Physical hazard exists when a

characteristic of person or property
insured increases the chance of loss.
• Moral hazard exists when an insured
person wants a peril to occur.