* * Bonus Chapter C Managing Risk Copyright © 2010 by The McGraw-Hill Companies, Inc. All rights reserved.McGraw-Hill/Irwin

* * Understanding Business Risks Goals of enterprise risk management:  Defining which risks the program will manage.  What risk management processes, technologies and investments will be required.  How risk management efforts will be coordinated across the firm. WHAT’S ENTERPRISE RISK MANAGEMENT? LG1 C-2

* * Managing Risk Risk -- The chance of loss, the degree of probability of loss and the amount of possible loss. Speculative Risk -- A chance of either profit or loss. Pure Risk -- The threat of loss with no chance for profit. WHAT’S RISK? LG2 C-3

* * Self Insurance Self-Insurance -- The practice of setting aside money to cover routine claims and buying only “catastrophe” insurance policies to cover big losses. WHAT’S SELF INSURANCE? LG2 Companies that self-insure can “go bare” and pay claims from its operating budget or set up a special fund to pay for claims. C-4

* * What Risks are Uninsurable? Uninsurable Risk -- A risk that no insurance company will cover. Risks can include:  Market risks  Political risks  Personal risks  Operational risks WHAT RISKS are UNINSURABLE? LG2 C-5

* * What Risks are Insurable? Insurable Risk -- A risk that the typical insurance company will cover, using the following guidelines:  The policyholder must have an insurable interest.  The loss must be measurable.  The chance of loss must be measureable.  The loss must be accidental.  The insurance company’s risk should be dispersed among different areas.  The insurance company can set standards for accepting risks. WHAT RISKS are INSURABLE? LG2 C-6

* * Health Insurance Health Maintenance Organizations (HMOs) -- Offer a full range of healthcare benefits, with emphasis on helping members stay healthy through preventative care. Preferred Provider Organizations (PPOs) -- Contract with hospitals and physicians, members usually pay some part of the bill. Health Savings Accounts (HSAs) -- Tax-deferred savings accounts linked to low cost, high-deductible health insurance policies. EMPLOYER HEALTH INSURANCE OPTIONS LG4 C-7

* * Disability Insurance Disability insurance replaces part of your income if you become disabled and can’t work. Worker’s compensation insurance guarantees payment of wages, medical care and rehabilitation for employees injured on the job. OTHER TYPES of INSURANCE LG4 C-8

* * Liability Insurance Professional liability insurance covers people found liable for professional negligence; also known as malpractice insurance. Product liability insurance covers liability arising out of products sold. LIABILITY INSURANCE LG4 C-9