02 Jan Commercial Insurance

Week 1 discussion

Introduction to Risk

Every day, individuals take risks concerning their personal and professional lives. Drivers take a risk by speeding on a highway. Students take a risk by not studying for a quiz. Investors take a risk by investing in a stock. Business owners take a risk by offering a new product line. In almost every case, the risk takers have some sort of control mechanism – or management – to equal out those risks (or at least they should). Individuals take the risk to achieve a personal or professional benefit (e.g., getting to work on time, getting more sleep, making money, increasing market share); to what level depends on a myriad of factors, none the least of which involves the level of risk the individual is willing to take.

This class will focus on the management of risk used by businesses operating on a national and global level. Personal risk and investment risk is discussed in other classes. Risk management is of great concern to any CEO or business owner, especially as it pertains to property and liability risks. Before we delve into this subject deeper, provide the class with an example of a risk that you engage in on a regular basis; explain what level you engage and what is your expected benefit.

Week 2 discussion

Risk managers rely on statistics and trend analysis in making their risk decisions. Chapter 2 provides a refresher course in statistics and mathematical concepts. Risk managers must provide executive management is hard number reasons for the directions they must take. Consider an insurance company that wants to underwrite automobile insurance; the actuaries need historical data involving claims and motor vehicle violations to properly rate their product. If you were the risk manager charged with developing a new line of auto insurance, which market would you pursue and which ones would you not pursue? Provide examples with factual data (and cite your sources) in your answer.

Week 3 discussion

Utility Theory

Our Introduction to Risk Management discussion in Week 1 is expanded to the understanding of chapter 3’s Utility Theory. Utility Theory discusses the satisfaction level based on the individual’s amount of risk they are willing to take. In some cases, the risk may be too great and the desired object is avoided (e.g., skydiving), or the satisfaction is too great that no risk management is considered (e.g., buying a lottery ticket). Somewhere in between, the management of risk is usually done by some form of insurance. For example, on a personal level, most drivers will buy auto insurance (actually, it’s required in all states) to hedge against a larger loss – the cost of the vehicle or the medical expenses of injured passengers. On the investment side, investors hedge their risky investments with conservative investments (or through the use of derivative instruments).

Risk management is fully discussed in chapter 4. The identification of a company’s risk profile and the analysis of what risks should be avoided. Risks are managed four ways: avoidance, retention, retention with loss control, and transfer. Provide an example of how the company you work for uses one of these risk management techniques. (if you don’t currently have an employer, you should go online and research risk management tools for companies).

Week 4 discussion

Library Assignment

As stated in the Project Description of the Syllabus, you are to visit your local public (or military base) library and observe the risk management tactics used by the facility. Develop a paper and post as a conference post; in addition, you must read and respond to two of your classmate’s papers.

Week 5 discussion

Insurance Companies

This week we discuss the operations of an insurance company. As stated before, the primary technique for risk management is transferring the risk, usually to an insurance company. Every risk manager should have a strong understanding of how an insurance company operates, prices its products, underwrites the risk, sells, and services the customer. (If you don’t have an employer at this time you can call an insurance agent and interview them about the commercial risks and how they help their clients manage those risks). This helps tremendously if a claim arises. Ask the risk manager of your company who provides the property insurance and respond with an overview of that insurance company. Include their history, current business model, and premium volume.

Week 6 discussion

Property and Liability Risk Management

Chapters 11 and 12 provide the tools and techniques needed by risk managers to control the myriad of potential losses from property and liability claims. A recent example is e-commerce risk – the data breaches at Target and the University of Maryland. Just as important is the management of liability risks, which brings on the use of the legal system as it pertains to negligence. Read the article titled “Obesity and Insurance—Litigation or Self-Discipline?” on page 509-510 and answer the discussion question as your conference post. Respond to your classmates posts as well.

Week 7 discussion

Commercial Insurance

All of the information we’ve read and discussed this semester should provide you with a good understanding of what defines risk management, and what options a risk manager has to control the company’s risks. But some things are never even considered and the risk manager has to rely on the public (and courts) to resolve. Consider the special article titled “Liability Limits: One Event or Two?” on pages 662-665; answer discussion question #1 as your conference posting. Read your classmates responses and agree or disagree.