Dr. James Kallman, ARM 5-1 Advanced PowerPoint Presentation ©2009 The National Underwriter Company

Dr. James Kallman, ARM 5-2 This Advanced PowerPoint Presentation accompanies the “Tools & Techniques of Risk Management & Insurance” textbook. Each of the 28 chapters in the textbook are presented here in the following sections:  Outline  Key concepts  Major sections  Chapter summary ©2009 The National Underwriter Company

Dr. James Kallman, ARM 5-3 Contents Techniques of Risk Management & Insurance Ch 1 Introduction to Traditional Risk Management……………1-5 Ch 2 Enterprise Risk Management…………………………….2-1 Ch 3 Risk Assessment: Identification…………………………..3-1 Ch 4 Risk Assessment: Quantification…………………………4-1 Ch 5 Overview of Risk Treatment Alternatives………………. 5-1 Ch 6 Non-insurance Transfer of Risk…………………………. 6-1 Ch 7 Insurance as a Risk Transfer Mechanism……………….7-1 Ch 8 Overview of Alternative Risk Transfer Techniques……..8-1 Ch 9 Global Risk Management…………………………………9-1 Ch 10 Loss Control Techniques……………………………… Ch 11 Emergency Response Planning……………………… Ch 12 Business Continuity Planning………………………… Ch 13 Claims Management…………………………………… Ch 14 Monitoring Claims for Financial Accuracy…………… Ch 15 Insurance Companies and Risk Management……… Ch 16 Working with an Agent or Broker……………………….16-1

©2009 The National Underwriter Company Dr. James Kallman, ARM 5-4 Contents Tools of Risk Management & Insurance Ch 17 Commercial General Liability Insurance……………….17-1 Ch 18 The Workers’ Compensation System………………….18-1 Ch 19 Commercial Property Insurance……………………… Ch 20 Directors and Officers’ Liability Insurance…………… Ch 21 Employment-Related Practices Liability Insurance… Ch 22 Business Automobile Insurance……………………… Ch 23 Crime Insurance………………………………………….23-1 Ch 24 Capital Markets Risk Transfer Tools………………… Ch 25 Loss Control Tools……………………………………….25-1 Ch 26 The Certificate of Insurance…………………………….26-1 Ch 27 Surety Bonds…………………………………………… Ch 28 Claim Reviews……………………………………………28-1

©2009 The National Underwriter Company Dr. James Kallman, ARM 5-5 Chapter 5 Overview of Risk Treatment Alternatives Outline What is it? The Options Decreasing the Cost of Risk Advantages and Disadvantages Chapter Summary

©2009 The National Underwriter Company Dr. James Kallman, ARM 5-6 Chapter 5 Overview of Risk Treatment Alternatives † What is it? There are four fundamental risk financing treatment alternatives: Avoidance Non-insurance Transfer (contractual) Retention Insurance Transfer The above order reflects costs Selecting the best alternative is subjective Consider the risk philosophy Consider available assets † - Chapter 10 Covers Loss Control Alternatives

©2009 The National Underwriter Company Dr. James Kallman, ARM 5-7 Chapter 5 Overview of Risk Treatment Alternatives The Options Avoidance Perform a cost/benefit analysis Decide if the risk is worth the reward Non-insurance Transfer Using contracts to shift legal responsibility Examples: Hold Harmless agreement Indemnification agreement Additional Insured provision Lease (Chapter 6 provides details of non-insurance contracts)

©2009 The National Underwriter Company Dr. James Kallman, ARM 5-8 Chapter 5 Overview of Risk Treatment Alternatives The Options Retention Appropriate for small, frequent, predictable losses Techniques: Insurance policy deductible Pure captive Risk retention group rent-a-captive Insurance Transfer Consider all other options before using insurance Insurance is expensive – 35% of premium O Overhead Use insurance to cover catastrophic losses (Chapter 7 provides details of insurance contracts)

©2009 The National Underwriter Company Dr. James Kallman, ARM 5-9 Chapter 5 Overview of Risk Treatment Alternatives The Options Supplement Adding risk control measure Prevention Reduction Risk control measures can be adopted for non-pecuniary reasons

©2009 The National Underwriter Company Dr. James Kallman, ARM 5-10 Chapter 5 Overview of Risk Treatment Alternatives The Options Supplement Risk Management Solution Tree

©2009 The National Underwriter Company Dr. James Kallman, ARM 5-11 Chapter 5 Overview of Risk Treatment Alternatives Decreasing the Cost of Risk Loss Prevention and Reduction Loss control decreases the cost of risk Retention provides the incentive for loss control Select a portfolio of the four risk financing alternatives First use loss control Then balance the costs of risk financing techniques Use fig. 5.1 to make risk financing decisions

©2009 The National Underwriter Company Dr. James Kallman, ARM 5-12 Chapter 5 Overview of Risk Treatment Alternatives Advantages and Disadvantages + Can create a complete risk management program + Prepares for hard market conditions + Enables flexible risk financing - Requires time to analyze costs/benefits - Advocating avoidance O loss of credibility

©2009 The National Underwriter Company Dr. James Kallman, ARM 5-13 Chapter 5 Overview of Risk Treatment Alternatives Chapter Summary What is it? 4 Techniques to finance risks Consider the risk philosophy and available assets The Options Avoidance. Non-insurance Transfer, Retention, Insurance Transfer, Prevention, and Reduction Decreasing the Cost of Risk Use loss control to decrease risk financing costs Select a portfolio of the four risk financing techniques Advantages and Disadvantages Prepares a complete, flexible, program for any conditions Requires time for analysis, use avoidance prudently