Risk

Risk
@#. Chance.
Ans: This is a term which refers to the probable advantageous, desirable or profitable of a fortuitous event. For example we usually say chance of passing an examination and not chance of failing an examination.
@#. Probability .
Ans: This is a term which refers to a neutral mathematical quantitative expression of an unforeseen or fortuitous event.
@#.What is Risk?
Ans: Generally risk means the possibility of some unfavorable events such as: hazard, peril, exposure to loss or injury. Risk refers to the chance that unfavorable event will occurs. Risk is always uncertain. People are always deal with the uncertainties of life.
This is to the term which probable disadvantageous, undesirable or unprofitable outcome of a fortuitous event, an event which is not desired, but nevertheless taking place. Example, we usually say risk of death and not risk of survival as death is something which is never desired. Actually risk is one kind of probability.
@#. Differentiate between risk and uncertainty.
Risk Uncertainty
1. Risk can be measured by statistically or mathematically. 1. Uncertainty cannot be measured.
2. Risk is avoidable. 2. Uncertainty is not avoidable.
3. Risk and income positively related. 3. There has been no relation between Uncertainty and income.
4. By insurance risk can be transferable element. 4. Uncertainty is not insurable.
5. Scientifically risk can be controllable. 5. Uncertainty is not controllable.
@#. Types of risk [Syllabus Item]
Ans: Business risk management is referring to the value of the business firm. Business risk represents the present solution of the business firm. The major business risk is three types. These types are-
1. Price risk: Price risk refers to the uncertainty over the extent of cash flows due to possible changes in output and input price. Out price refers to the risk of changes in the price that a firm can demand for its goods and services. Input price refers to the risk of changes in the price that a firm must pay for labor materials and other output.
2. Credit risk: Credit risk that a firm customer and the parties to which it has lent money will delay or fail to make promised payment is known as credit risk.
3. Pure risk: This types of risk in which loss is the only possible outcome; there is no beneficial result there is a risk of loss with no opportunity to gain.
@#. Insurable risk [Syllabus Item]
Ans: The insurable risks are those which after the selection process can be carried out by an insurer although there can be different terms and conditions for different policy-holders. Insurable risks are divided into three broad classes-
1. Standard risk: - The standard risk is related with the normal life where there is no much or no less risk. There are certain criteria on which the risks are judged as normal life.
2. Sub- Standard risk: - Sub- Standard risks are those risks which are higher though insurable than the standard risk. Thus, the Sub- Standard risks are above the standard risk and below the uninsurable risk.
3. Supper-Standard risk: - The supper-standard risk is present where there is lesser risk than the standard risk. This is also called a preferred risk. An insurer does not prefer to issue preferred risk policies because it increases the premium on other standard risk which may cause reduction in loss of business.
@#. Risk identification [Syllabus Item]
The risk identification is very important object the environment of the insurance business. The first step of the risk management is the identification of the risk. Everyday we face many types of risk but all risk is not same level. So we give first priority to identifying the major risk. Without identifying risk the risk manager cannot solve the potential risk of the insurance business steps of risk identification has some steps which are present here:-
1. Potential problems can be identified. 2. Analyze the problems level.
3. Compare to the other problem. 4. Select the first priority of risk.
@#. The steps of risk management.
The steps of risk management are simple and general process of the management. The steps are stated below: -
1. Indentify the risk: - The first step is to indentify the risk. Identify those tasks which have the potential to cause harm for the clients. Every day we are face many types of risk but all risk are not same level. So we give first priority to identifying the major risk.
2. Analyze and evaluate the risk: - The second step of risk management is to analyze and evaluate the risk the identifying risk in which level risk what is actual result. The selected risk evaluate is always important.
3. Control or eliminate the risk: - The third step of risk management is to control or eliminate the risk. If identifying the risk is controllable then its control otherwise it’s become eliminate.
4. Protect the agency and the consumers of its services: - The forth a step of the risk management is to protect the agency and the consumers of its services.
a) To protect the agency and staff from financial loss and,
b) To provide insured parties with the funds to cover losses the agency caused.
5. Follow up the result: - The fifth or last step of risk management is following up the result. Follow up the result is risk controlling process and the actual process of the identifying risk is what and the actual result which is negative or positive.
@#. Discuss the objective of risk management process. (2006 -12.c)
Ans: The possible objective of risk management can be derived from possible contribution of risk management process. Objective of risk management process are as follows:
1) Mere survival 2) Peace of mind
3) Lower risk management cost 4) Fairly stable earning
5) Litter 6) Satisfaction of the firm sciences of social stability.
7) Continued growth.

@#. Discuss about the risk management function.
Ans: Risk management function involves the option with general management concept to a specification. Identification of risk and solution that risk is risk management function. Risk management function can be dividing in six basic functions. These are –
1. Technical activities: Technical activities are essential elements of risk management function. A technical activity includes production, manufacture and adaption.
2. Commercial activities: Commercial activities include buying, selling and exchanging.
3. Financial activities: Financial activities mean such for an option to use of capital.
4. Security activities: Security activities measures protection of property and person.
5. Accounting activities: Accounting activities includes stock taking, financial statement, cost and statistics.
6. Managerial activities: Managerial activities is established by some essential elements such as
a) Planning b) Control
c) Organization d) Command
e) Co – ordination
@#. What are the possible contributions of risk management process?
Ans: To Business: The possible contribution of risk management to business can be divided in five contribution/categories –
1. Risk management may make the different between survival and failure some losses.
2. Profit can be improved by reduce expenses as well as increasing income.
3. Risk management contributes indirectly to business profit.
4. Peace of mind made possible by sound mind management of pure risk.
5. Other risk management plan help to other.
To Family: the possible contribution of risk management to family can be divided in five categories:
1. Risk management is able to help a family to maintain continually a life style.
2. Risk management is able to reduce a family risk cost for insurance without reduce protection.
3. Risk management provides a family adequate protection against the death or poor health.
4. By proper risk management a family member is relived from physical and mental strain.
5. Family gain some satisfaction from risk management program the improve their image
@#. Discuss about the measurement of risk? [ALI-REZA]
Ans: The risk are measured or evaluated for fixation of premium to be charged by the insurer. There are two method of calculation of premium.
1. Value of service: The value of service determines the rate of premium according to utility of insurance to each proponent.
2. Cost of service: In fact premium should be charged according to cost of insurer. It is two types a)Fixed cost b)Recurring cost

@#. Mention the different types of hazard. (2007 – 9.a)
Ans: Hazards are basically of two types –
1. Physical hazards: physical hazards indicate those dangers of the subject – matter of insurance which can be ascertained or indentified by mere inspection of the risk. The hazards are apparent in the subject matter itself. The dangers are visible form the very nature, construction, and the situation of the subject matter. Example of physical hazard marine, fire, life, accident.
2. Moral hazards: Moral hazard indicates those dangers which relate to character, integrity and mental attitude of the insured. These are not visible and can not be identified or ascertained by mere inspection of the risk or the subject matter of insurance. In every risk an element of moral hazard, may be in varying degree, is always present. Example of moral hazard carelessness, difficult insured, fraud, over insurance, maintenance.

@#. How risk in determined in life insurance?
Ans: Risk is determined in life insurance is given below: -
1. The first and the foremost purpose of the selection of risk are to determine whether the proposal should be accepted or not.
2. The second objective of the selection is to determine the rate of premium to be charged from the assured. The premium depends upon the amount of risk. Higher is the risk the more will be amount of premium.
3. The third objective there are various degrees of risk to a person and so theoretically at least, all the persons should be charged different premiums, but it is not practicable to charge so many premiums as many applicants are.
4. The fourth aim of selection is to avoid any discrimination on the part of the life assured. Since the degree of risk is not the same to all the persons, different premiums should be charged from different groups.
5. It is very essential to select standard risk at standard cost and sub – standard risk at extra premium to avoid inequality of cost and unfavorable selection of risk.
@#. Critically examine the various factors affecting risk. From where these information of risk is obtained?
Ans:
Factors affecting risk: In the life insurance, the factors may affects the risks are usually those factors which are affecting the mortality, they are also called factors affecting longevity of a person. The mortality is not the only risk but the capacity and willingness of a person also influence the insurance decisions. These factors are –
1. Age
2. Build: Includes height, weight, and the distribution of weight and chest expansion.
3. Physical condition: Includes sight, hearing, heart, lungs, nervous system etc.
4. Personal history: Includes past habit, previous occupation, insurance history.
5. Family history
6. Occupation
7. Residence: Includes geographical location, atmosphere, political stability, climate, construction of house.
8. Present habit
9. Morals
10. Race and Nationality
11. Sex
12. Economic status
13. Defense services
14. Plan of insurance

Sources of risk information: - Infromation on the factors affecting risk is collected before it can be evaluated to determine the degree of risk. It is collected from various sources because it is not possible to get all information from one source.
1. The proposal form: Proposal form is divided into two parts –
a. Application form
b. Personal statement
2. Medical examiner’s report
3. Agent’s report
4. The Inspection report
5. Private friends reports
6. Attending Physicians
7. Medical information bureau (MIB)
8. Neighbors and Business associates
9. Commercial credit investigation bureau