RSK3701 SUMMARISED
EXAM NOTES 2023
UPDATED SUMMARY.
, Study Unit 01
Define and explain - Risk: Risk is the uncertainty of loss.
Unfavourable deviation from the expected.
Define Risk Management: A means of removing some or all of the uncertainty
Differentiate between :
Pure / Event Risk Speculative Risk
There is either a Loss or No Loss Taken out in the hope of some gain.
Particular risk: Affects only you of your family, not society as a whole. Break in.
Fundamental risk: Affects society as a whole. War. Earthquake.
Risk Management Control – 2 core activities:
- Risk Financing: Retention
Transfer
- Risk Control: Avoidance / Elimination
Reduction / Minimisation
Risk sharing: Special case – risk is transferred from the individual to the group
**Risk cannot be transferred – only the financial consequences of the risk are transferred to the insurer.
How does insurance fit into risk management: Risk control – Financial – Transfer of risk
Steps in the risk management process: 3 Phases in the risk management process:
1. Risk Identification
2. Risk Evaluation
Severity Frequency
3. Risk Control
Financial Physical
Retention Transfer Elimination Minimisation
Some Risk:
Catastrophe
Pre- Post-
Self/ Non-
Loss Loss
Captive insurance Whole
Insurance Risk
Risk identification by means of: - Physical inspection
- Organisational charts
- Flow charts
- Check lists
, Skills required to identify risks:
How to evaluate risk quantitatively and qualitatively:
- Quantitative Measures: Using statistics – number of loss incidents; cost of losses
- Qualitative Measures: Investigation – causes of losses
Difference between:
Non - Insurance Self - Insurance:
Fund: No Fund allocated for any losses Fund set up to cover losses
Risk improvements: May or may not have been improvements Most likely have identified problem areas
and will have taken some steps to
improve
Handling of losses: Pay for losses as they occur Staff and procedures will be in place
Excess: Payable with each and every claim
Franchise: Applies to each and every claim, but if the claim exceeds the franchise amount, the claim will be
paid out in full.
Study Unit 02
Define Insurance: The transfer of the financial consequences of risk and sharing the loss that occurs equitably
Combining many risk exposures with the cost of losses being shared by all the participants.
Identify and explain two essential features of insurance / 2 Functions of insurance:
- The transfer of the financial consequences from an individual to a group
- The sharing of losses on some equitable basis by all member of the group
Why is the term ‘self-insurance’ a misnomer?
- The essence of insurance is the transfer and share and no one can transfer to or share with
himself.
Explain what is meant by “adverse selection” and why is it a problem for insurers?
- The tendency among people with a greater probability of loss than the average, to seek insurance.
- PROBLEM: The greater losses than expected for the insurer
How to identify an insurable risk (7):
- Similar Risks: Experience of similar risk is necessary to establish a fair premium.
- Measurable and Definite loss: Must be able to tell when a loss occurred to attach a particular value to
it.
- Fortuitous / Accidental loss: Loss is due to accident or chance.
- Inevitable loss: Although death is inevitable, the timing of death is uncertain and therefore insurable.
- Non-catastrophic loss: Catastrophes such as drought and famine are therefore not insurable.
- Insurable Interest: You can only insure things with which you have a legally recognised financial
relationship.
- Public Policy: Law states that contracts may not be against public policy.
Explain how the law of large numbers support the operation of the insurance mechanism:
- The law of large numbers states that the greater the number of predictions of an event based on
chance, the greater is the chance that the actual result will be the same as the expected results.
Insurers is affected by the Law of Large numbers in two ways:
1st If the probability of a loss if to be estimated accursedly, a large number of cases should be
considered.
nd
2 After the probability has been estimated, the estimate can only be used as a basis for
EXAM NOTES 2023
UPDATED SUMMARY.
, Study Unit 01
Define and explain - Risk: Risk is the uncertainty of loss.
Unfavourable deviation from the expected.
Define Risk Management: A means of removing some or all of the uncertainty
Differentiate between :
Pure / Event Risk Speculative Risk
There is either a Loss or No Loss Taken out in the hope of some gain.
Particular risk: Affects only you of your family, not society as a whole. Break in.
Fundamental risk: Affects society as a whole. War. Earthquake.
Risk Management Control – 2 core activities:
- Risk Financing: Retention
Transfer
- Risk Control: Avoidance / Elimination
Reduction / Minimisation
Risk sharing: Special case – risk is transferred from the individual to the group
**Risk cannot be transferred – only the financial consequences of the risk are transferred to the insurer.
How does insurance fit into risk management: Risk control – Financial – Transfer of risk
Steps in the risk management process: 3 Phases in the risk management process:
1. Risk Identification
2. Risk Evaluation
Severity Frequency
3. Risk Control
Financial Physical
Retention Transfer Elimination Minimisation
Some Risk:
Catastrophe
Pre- Post-
Self/ Non-
Loss Loss
Captive insurance Whole
Insurance Risk
Risk identification by means of: - Physical inspection
- Organisational charts
- Flow charts
- Check lists
, Skills required to identify risks:
How to evaluate risk quantitatively and qualitatively:
- Quantitative Measures: Using statistics – number of loss incidents; cost of losses
- Qualitative Measures: Investigation – causes of losses
Difference between:
Non - Insurance Self - Insurance:
Fund: No Fund allocated for any losses Fund set up to cover losses
Risk improvements: May or may not have been improvements Most likely have identified problem areas
and will have taken some steps to
improve
Handling of losses: Pay for losses as they occur Staff and procedures will be in place
Excess: Payable with each and every claim
Franchise: Applies to each and every claim, but if the claim exceeds the franchise amount, the claim will be
paid out in full.
Study Unit 02
Define Insurance: The transfer of the financial consequences of risk and sharing the loss that occurs equitably
Combining many risk exposures with the cost of losses being shared by all the participants.
Identify and explain two essential features of insurance / 2 Functions of insurance:
- The transfer of the financial consequences from an individual to a group
- The sharing of losses on some equitable basis by all member of the group
Why is the term ‘self-insurance’ a misnomer?
- The essence of insurance is the transfer and share and no one can transfer to or share with
himself.
Explain what is meant by “adverse selection” and why is it a problem for insurers?
- The tendency among people with a greater probability of loss than the average, to seek insurance.
- PROBLEM: The greater losses than expected for the insurer
How to identify an insurable risk (7):
- Similar Risks: Experience of similar risk is necessary to establish a fair premium.
- Measurable and Definite loss: Must be able to tell when a loss occurred to attach a particular value to
it.
- Fortuitous / Accidental loss: Loss is due to accident or chance.
- Inevitable loss: Although death is inevitable, the timing of death is uncertain and therefore insurable.
- Non-catastrophic loss: Catastrophes such as drought and famine are therefore not insurable.
- Insurable Interest: You can only insure things with which you have a legally recognised financial
relationship.
- Public Policy: Law states that contracts may not be against public policy.
Explain how the law of large numbers support the operation of the insurance mechanism:
- The law of large numbers states that the greater the number of predictions of an event based on
chance, the greater is the chance that the actual result will be the same as the expected results.
Insurers is affected by the Law of Large numbers in two ways:
1st If the probability of a loss if to be estimated accursedly, a large number of cases should be
considered.
nd
2 After the probability has been estimated, the estimate can only be used as a basis for
