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

2. 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

3. 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………………………………..10-1 Ch 11 Emergency Response Planning………………………..11-1 Ch 12 Business Continuity Planning…………………………..12-1 Ch 13 Claims Management……………………………………..13-1 Ch 14 Monitoring Claims for Financial Accuracy……………..14-1 Ch 15 Insurance Companies and Risk Management………..15-1 Ch 16 Working with an Agent or Broker……………………….16-1

4. ©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………………………..19-1 Ch 20 Directors and Officers’ Liability Insurance……………..20-1 Ch 21 Employment-Related Practices Liability Insurance…..21-1 Ch 22 Business Automobile Insurance………………………..22-1 Ch 23 Crime Insurance………………………………………….23-1 Ch 24 Capital Markets Risk Transfer Tools…………………..24-1 Ch 25 Loss Control Tools……………………………………….25-1 Ch 26 The Certificate of Insurance…………………………….26-1 Ch 27 Surety Bonds……………………………………………..27-1 Ch 28 Claim Reviews……………………………………………28-1

5. ©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

6. ©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

7. ©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)

8. ©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)

9. ©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

10. ©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

11. ©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

12. ©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

13. ©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