Personal Risk Management PDF

4A 1/ 42 Personal Risk Management 1 / 42  ‘ Risk The possibility of harm, injury, loss, damage or destruction. - impacts on:...

4A 1/ 42 Personal Risk Management 1 / 42  ‘ Risk The possibility of harm, injury, loss, damage or destruction. - impacts on: - earnings: death/disability - personal liability: action/inaction - property: fire/theft - investments  2/ 42 Personal Risk Management 2 / 42  ‘ Two Basic Types of Risk 1. Speculative Risk - chance of loss or gain, or no change 2. Pure Risk - chance of loss or no change - no chance of gain https://en.wikipedia.org/wiki/John_Darwin_disappearance_case  3/ 42 Personal Risk Management 3 / 42  ‘ Risk Terminology 1. Perils - the actual cause(s) of a loss 2. Hazards - acts or conditions that would increase the liklihood of a peril arising, or the severity of the loss  4/ 42 Personal Risk Management 4 / 42  ‘ 3 Types of Hazards 1. Physical - results from some physical property - location - chemical composition 5/ 42  Personal Risk Management 5 / 42  Co-Insurance ‘ 3 Types of Hazards Deductibles 2. Moral Exclusions - incentive to take additional risk Monitoring Intentional since don’t [fully] bear consequences of one’s actions Insurance Finance Gov’t Policy 3. Morale - complacency and Subconscious negligence from a perceived lack of risk - altered perception of risk when risk mitigation in place 6/ 42  Personal Risk Management 6 / 42  ‘ Adverse Selection - those at greater risk are more likely to purchase insurance to cover that risk ‘ Nature of Contract Valued or “non-indemnity” Contract the amounts of any payments are known in advance, and not based on the individual's actual loss Indemnity Contract amount paid depends on the individual's actual loss.  7/ 42 Personal Risk Management 7 / 42  ‘ Insurable Interest - if loss or damage to an insured entity would result in an actual financial loss Financial Interest N ownership N non-ownership cases Non-Financial Relationships N dependency N emotional distress N legal obligations - when must insurable interest exist? Property and Liability Insurance Life Insurance  8/ 43 Personal Risk Management 8 / 42  ‘ Proximate Cause - the initial act which sets off a natural and continuous sequence of events that Forseeable produces injury or loss - Responsibility for injury or loss lies Intervening Event with the last negligent act that produces the injury or loss  9/ 42 Personal Risk Management 9 / 42  ‘ Co-insurance A policy provision whereby the insured and insurer share the loss, usually in some fixed proportion (perhaps after a deductible is met) ‘ Co-ordination of Benefits (COB) A policy provision which is designed to eliminate duplicate payments and provide the sequence in which coverage will apply (primary, secondary) when an individual is insured under two or more contracts.  10/ 42 Personal Risk Management 10 / 42  ‘ Structure of Insurance Policies 1. Declarations the who, what, when and where of the particular policy 2. Insuring Agreements what the insurer agrees to do 3. Exclusions what the insurer will not do 4. Conditions those acts that are required if the policyholder is to receive coverage 5. Endorsements amendments to the original printed policy contract  11/ 42 Personal Risk Management 11 / 42  ‘ 1. Personal Risks — death/disability ˜ individual ˜ family members — unemployment ‘ 2. Property Risks — theft, damage, destruction ˜ direct/indirect  12/ 42 Personal Risk Management 12 / 42  ‘ 3. Liability Risks — damages through legal system from carelessness or negligence ˜ personal injury ˜ property damage — punitive damages ‘ 4. Failure of Others to Perform  13/ 42 Personal Risk Management 13 / 42  1. Severity How Bad? — Critical - Serious financial consequences - could result in bankruptcy — Material - Serious financial consequences - reduction in SOL — Minor - Little financial consequences - small effect on income/expenses 14/ 42 Personal Risk Management 14 / 42  2. Frequency How Often? liklihood or probability of occurrence — High — Medium — Low  15/ 42 Personal Risk Management 15 / 42  ‘ Risk Property Matrix Frequency Severity High Medium Low Critical Material Minor premature death from natural causes  16/ 42 Personal Risk Management 16 / 42  ‘ Risk Property Matrix Frequency Severity High Medium Low Critical Y Material Minor premature death from skydiving Other Collisions Other (15.90%) Collisions (16.87%) 15.9% 16.9% Reserve Problems Reserve Problems (5.30%) 5.3% Malfunctions Malfunctions (18.31%) Landings 18.3% Landings (34.22%) 34.2% No Pulls 9.4% No Pulls (9.40%) www.dropzone.com/fatalities & www.getsure.com  17/ 42 Personal Risk Management 17 / 42  ˜ MLB Contract "The player agrees that he will not engage in professional boxing or wrestling; and that, except witht he written consent of the club, he will not engage in skiing, auto racing, motorcycle racing, sky diving or in any game or exhibition of football, soccer, professional league basketball, ice hockey or other sport involving a substantial risk of personal injury." ˜ NBA Contract "The player agrees that he will not engage in skydiving, hang gliding, snow skiing, rock or moutain climbing, rappelling and bungee jumping, any fighting, boxing or wrestling, driving or riding a motorcycle or moped, riding any motorized vehicle, operating an aircraft of any kind." Contracts prior to NY Yankee's pitcher Cory Lidle's fatal plane crash in New York City, 10-Oct-06  18/ 42 Personal Risk Management 18 / 42  ‘ Risk Property Matrix Frequency Severity High Medium Low Critical Material Minor Children’s tooth caveties  19/ 42 Personal Risk Management 19 / 42  ‘ Risk Property Matrix Frequency Severity High Medium Low Critical Material Minor Earthquake damage to house in Ontario  20/ 42 Personal Risk Management 20 / 42  ‘ Risk Property Matrix Frequency Severity High Medium Low Critical Material Minor Ice Storm Damage to Freezer Contents 21/ 42 Personal Risk Management 21 / 42  RISK MANAGEMENT STRATEGIES RISK RISK CONTROL FINANCING — Control Exposure To Risk — Control Severity of Loss  22/ 42 Personal Risk Management 22 / 42  RISK MANAGEMENT STRATEGIES RISK RISK CONTROL FINANCING — Arrange for Funds to Cover Potential Loss  23/ 42 Personal Risk Management 23 / 42  RISK MANAGEMENT STRATEGIES RISK RISK CONTROL FINANCING AVOIDANCE SHARING or TRANSFERING REDUCTION RETENTION  24/ 42 Personal Risk Management 24 / 42  RISK MANAGEMENT STRATEGIES RISK RISK CONTROL FINANCING AVOIDANCE DON’T !!  25/ 42 Personal Risk Management 25 / 42  RISK MANAGEMENT STRATEGIES RISK RISK CONTROL FINANCING REDUCTION 26/ 42  Personal Risk Management 26 / 42  RISK MANAGEMENT STRATEGIES RISK RISK CONTROL FINANCING — Transfer SHARING or Financial TRANSFERING Burden To Others  27/ 42 Personal Risk Management 27 / 42  RISK MANAGEMENT STRATEGIES RISK RISK CONTROL FINANCING — Informal — Deductibles — Waiting Periods — Co-Insurance — Exclusions RETENTION  28/ 42 Personal Risk Management 28 / 42  ‘ Risk Property Matrix Frequency Severity High Medium Low Critical TRANSFER Material Minor REDUCE RETAIN : Premature death: skydiving : Premature death: natural causes : Children’s tooth cavities : Ice storm damage to freezer contents  29/ 42 Personal Risk Management 29 / 42  1. Define the Risk Management Objectives 2. Identify & Evaluate the Risks 3. Identify Appropriate Risk Management Strategies 4. Implementation 5. Review & Update  30/ 42 Personal Risk Management 30 / 42  1. Define the Risk Management Objectives 2. Identify & Evaluate the Risks 3. Identify Appropriate Risk Management Strategies 4. Implementation 5. Review & Update  31/ 42 Personal Risk Management 31 / 42  ‘ Typical Objectives — preserve household income if death/disability — protect assets against loss from ˜ theft, destruction ˜ personal liability from action/inaction  32/ 42 Personal Risk Management 32 / 42  1. Define the Risk Management Objectives 2. Identify & Evaluate the Risks 3. Identify Appropriate Risk Management Strategies 4. Implementation 5. Review & Update  33/ 42 Personal Risk Management 33 / 42  1. Review Financial Statements - info on property at risk - info on income lost if death/disability 2. Review Lifestyle & Familty Situations - occupation & personal activities - legal liability from some professional/ volunteer activities - health & heredity conditions  34/ 42 Personal Risk Management 34 / 42  3. Risk Evaluation Use Risk Matrix ˜ Severity ˜ Frequency 35/ 42 Personal Risk Management 35 / 42  1. Define the Risk Management Objectives 2. Identify & Evaluate the Risks 3. Identify Appropriate Risk Management Strategies 4. Implementation 5. Review & Update  36/ 42 Personal Risk Management 36 / 42  RISK MANAGEMENT STRATEGIES RISK RISK CONTROL FINANCING AVOIDANCE SHARING or TRANSFERING REDUCTION RETENTION  37/ 42 Personal Risk Management 37 / 42  1. Define the Risk Management Objectives 2. Identify & Evaluate the Risks 3. Identify Appropriate Risk Management Strategies 4. Implementation 5. Review & Update  38/ 42 Personal Risk Management 38 / 42  ‘ Typical Questions — Is one’s job more/less secure? — Have # of dependent’s changed? — Any significant health changes? — Different risky hobbies or jobs? — Real assets changed in value? — Changes in cost of living? 39/ 42 — Should beneficiaries be changed?  Personal Risk Management 39 / 42  ‘ Typical Questions — Significant environmental changes?  40/ 42 Personal Risk Management 40 / 42  ‘ Reed Chalmers ‘ Schmendrick the Magician ‘ Brian M. ‘ Salvatore Cuchimel ‘ Eustace Wingtip Chapter 9, #1 & 2 Life Disability Property Liability  41/ 42 Personal Risk Management 41 / 42  42/ 42 Personal Risk Management 42 / 42