Principle of Risk Management and Insurance
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ASC 172
PRINCIPLE OF RISK MANAGEMENT AND INSURANCE
NURUL SYAFIQAH SHAHRIM
2012216192
CHAPTER 1 : RISK AND ITS TREATMENT
DIFFERENT DEFINITIONS
1) RISK - uncertain in future - eg : risk of being killed in an auto accident, risk of lung cancer for smokers
2) LOSS EXPOSURE - situation in which loss is possible to occur - eg : building may be damaged by earthquake
3) OBJECTIVE RISK - relative variation of actual loss from expected loss - apply LAW OF LARGE NUMBER (as number of exposure units increase, more closely the actual loss will approach the expected loss experience
4) SUBJECTIVE RISK - uncertainty based on a person’s mental condition - eg: a drunker who drive a car may be uncertain whether he will arrive home safely or will be arrested by the police
5) CHANCE OF LOSS - probability that event will occur
CHANCE OF
LOSS
OBJECTIVE PROBABILITY SUBJECTIVE PROBABILITY - individual’s personal estimate of the chance of loss
- people buy lottery ticket on their birthday believe it is their lucky day and overestimate the small chance of winning
INDUCTIVE REASONING
Eg : person age 21 will die before age 26 cannot be logically deduced
DEDUCTIVE REASONING
Eg : toss a coin, roll a dice
6) PERIL - cause of loss - eg : if your house burns because of fire, then the peril is the fire 7) HAZARD - condition that creates or increases frequency or severity of loss - 4 types : (i) physical - physical condition that frequency/severity of loss - eg : icy roads may lead to accidents
ASC 172
PRINCIPLE OF RISK MANAGEMENT AND INSURANCE
NURUL SYAFIQAH SHAHRIM
2012216192
CHAPTER 1 : RISK AND ITS TREATMENT
DIFFERENT DEFINITIONS
1) RISK - uncertain in future - eg : risk of being killed in an auto accident, risk of lung cancer for smokers
2) LOSS EXPOSURE - situation in which loss is possible to occur - eg : building may be damaged by earthquake
3) OBJECTIVE RISK - relative variation of actual loss from expected loss - apply LAW OF LARGE NUMBER (as number of exposure units increase, more closely the actual loss will approach the expected loss experience
4) SUBJECTIVE RISK - uncertainty based on a person’s mental condition - eg: a drunker who drive a car may be uncertain whether he will arrive home safely or will be arrested by the police
5) CHANCE OF LOSS - probability that event will occur
CHANCE OF
LOSS
OBJECTIVE PROBABILITY SUBJECTIVE PROBABILITY - individual’s personal estimate of the chance of loss
- people buy lottery ticket on their birthday believe it is their lucky day and overestimate the small chance of winning
INDUCTIVE REASONING
Eg : person age 21 will die before age 26 cannot be logically deduced
DEDUCTIVE REASONING
Eg : toss a coin, roll a dice
6) PERIL - cause of loss - eg : if your house burns because of fire, then the peril is the fire 7) HAZARD - condition that creates or increases frequency or severity of loss - 4 types : (i) physical - physical condition that frequency/severity of loss - eg : icy roads may lead to accidents