Floods, theft, employee injuries, recession-driven sales collapses, borrowers who fail to pay off their obligations—what is a firm to do about these and sundry other threats it faces? This question is addressed by the field of risk management. Possible answers include reducing risky activities, taking precautions to improve the outcomes of those activities, acquiring insurance, entering derivatives positions, and more. FIN 454 will examine these alternatives with an emphasis on insurance. We will consider inherent challenges in the sharing of risk (e.g., moral hazard), discuss the legal and regulatory framework within which the insurance market operates, and learn about specific types of insurance from life and health to commercial liability. While much of the course will be viewed from the perspective of general businesses managing their risks, we will also consider the management of insurance firms themselves.
Learning Outcomes (not comprehensive)
1. Identify various risks and quantify risk
2. Understand insurance company operation and regulation
3. Know motivations for insurance and factors constraining insurability of risk 4. Know the characteristics of different types of insurance policies and employee benefit plans 5. Understand and evaluate various types of risk management (e.g., loss control, insurance, alternative risk transfer)
Each of these outcomes will be assessed through homework and exams as described below.
Course Prerequisite: FIN 341. The textbook is written to accommodate those without prior finance experience, but some of the supplemental material I will employ assumes basic knowledge of finance, and you will also draw on experience gained in the ACCT, MATH, DSCI, and MIS courses that are prerequisites for FIN 341. Moreover, we will cover portions of the early textbook chapters somewhat rapidly because of my expectation that the content will largely be familiar to you.