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August/Fall
2012
Master
of Business Administration - MBA Semester 4
Subject
Code – MF0018
Subject
Name – Insurance and Risk Management
4
Credits
(Book ID:
B1319)
Assignment
Set- 1 (60 Marks)
Note: Each
question carries 10 Marks. Answer all the questions.
Q.1
Explain chance of loss and degree of risk with examples [10 Marks]
Answer : Chance of loss
Loss is the injury or damage borne by the insured in
consequence of the happening of one or more of the accidents or misfortunes
against which the insurer, in consideration of the premium, has undertaken to
assure the insured. Chance of loss is defined as the probability that an event
that causes a loss will occur. The chance of loss is a result of two factors,
namely peril and hazard. Hazards are further classified into the following four
types:
· Physical
hazard – This is a danger
likely to happen due to the physical characteristics of an object, which
increases the chance of loss. For example defective wiring in a building which
enhances the chance of fire.
· Moral
hazard – It is an increase in
the probability of loss due to dishonesty or character defects of an insured
person. For example, Burning of unsold goods that are insured in order to
increase the amount of claim is a moral hazard.
· Morale
hazard – It is an attitude of
carelessness or indifference to losses, because the losses were insured. For
example, careless acts like leaving a door unlocked which makes it easy for a
burglar to enter, or leaving car keys in an unlocked car increase the chance of
loss.
· Legal
hazard – It is the severity
of loss which is increased because of the regulatory framework or the legal
system. For example actions by government departments restricting the ability
of insurers to withdraw due to poor underwriting results or a new environment law
that alters the risk liability of an organisation.
Degree of risk refers to the intensity of objective
risk, which is the amount of uncertainty in a given situation. It can be
assessed by finding the difference between expected loss and actual loss. The
formula used is
Degree of risk = 
Degree of risk is measured by the probability of
adverse deviation. If the probability of the occurrence of an event is high,
then greater is the likelihood of deviation from the outcome that is hoped for
and greater the risk, as long as the probability of loss is less than one. In
the case of exposures in large numbers, estimates are made based on the
likelihood of the number of losses that will occur. With regard to aggregate
exposures the degree of risk is not the probability of a single occurrence but
it is the probability of an outcome which is different from that expected or
predicted. Therefore insurance companies make predictions about the losses that
are expected to occur and formulate a premium based on that.
Q.2
Explain in detail Malhotra Committee recommendations [10 Marks]
Q.3 What
is the procedure to determine the value of various investments?[10 Marks]
Q.4
Discuss the guidelines for settlement of claims by Insurance company [10 Marks]
Q.5 What
is facultative reinsurance and treaty reinsurance? [10 Marks]
Answer : Facultative reinsurance
Q.6 What
is the role of information technology in promoting insurance products [10
Marks]
Answer : Role of Information Technology in
Insurance
August/Fall
2012
Master
of Business Administration - MBA Semester 4
Subject
Code – MF0018
Subject
Name – Insurance and Risk Management
4
Credits
(Book ID:
B1319)
Assignment
Set- 2 (60 Marks)
Note: Each
question carries 10 Marks. Answer all the questions.
Q.1
Explain risk avoidance, risk reduction and risk retention [10 Marks]
Answer : What Is Risk Management?
The Board of Regents has approved a policy giving responsibility
for the preservation of assets, both human and physical, to the Office of Risk
Management. This is accomplished by identifying, evaluating, and controlling
loss exposures faced by the University. Risk Management's goal is to minimize
the adverse effects of unpredictable events. For example, it is not known if a
fire will ever occur in your office, but if it does, the adverse effect of that
fire will be reduced if proper risk management tools have been utilized.
There are four main ways to manage risk:
·
risk avoidance,
·
risk transfer,
·
risk reduction and
·
risk retention.
Each is applicable under different circumstances. Some ways of
managing risk fall into multiple categories. Multiple ways of managing risk are
often utilized simultaneously.
Risk
Avoidance (elimination of risk)
Completely avoiding an activity that poses a potential risk. While
attractive, this is not always practical. By avoiding risk we forfeit potential
gains, be it in life, in business or in with investments.
Risk
Transfer (insuring against risk)
Most commonly, this is to buy an insurance policy. The risk is
transferred to a third-party entity (in most cases an insurance company). To be
more clear, the financial risk is transferred to a third-party. For example, a
homeowner’s insurance policy does not transfer the risk of a house fire to the
insurance company, it only transfers the financial risk. A house fire is still
just as likely as before. Risk sharing is also a type of risk transfer. For
example, members assume a smaller amount of risk by transferring and sharing
the remainder of risk with the group.
Risk
Reduction (mitigating risk)
This is the idea of reducing the extent or possibility of a loss.
This can be done by increasing precautions or limiting the amount of risky
activity. For example, installing a security alarm, smoke detectors, wearing a
seat belt or wearing a helmet are ways of employing risk reduction.
Diversification of assets and hedging are forms of risk reduction with
investments. Investments in information are a way of mitigating risk because
you are better informed, thus reducing the uncertainty. Another way of
employing risk reduction is the safety in numbers approach. When discussing
risk transfer, we spoke briefly about risk sharing. The larger the number of
people sharing risk, the less severe the shared effects will be. Statistically,
only a small number of individuals in the group will experience an unfortunate
event. Insurance companies exist based on this concept.
Risk
Retention (accepting risk)
Risk retention simply involves accepting the risk. Even if the
risk is mitigated, if it is not avoided or transferred, it is retained.
Retention is effective for small risks that do not pose any significant
financial threat. The financial status of the family or individual will
determine the acceptability of a risk. A couple of examples of risk retention:
A billionaire may not have to worry about insuring his car. An individual may
not be able to afford or obtain health insurance. Both individuals are retaining
risk, one is because they’re able to, the other is because they have to. Risk retention augments risk transfer
through deductibles. With a deductible, we retain or ‘self-insure’
small, frequent occurrences and only utilize insurance for needs over a
particular dollar threshold, our deductible limit.
Q.2 What
are the challenges faced by Indian Insurance Industry and what measures are
taken to overcome them? [10 Marks]
Q.3 What
is premium accounting and claim accounting? [10 Marks]
Q.4 What
factors indicate that there is a good potential for growth of insurance
services in rural markets? [10 Marks]
Q.5
Critically evaluate the role of agents in insurance industry [10 Marks]
Q.6
Explain product design and development process in Insurance Industry [10 Marks]
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