risk assessment insurance operations. “copyright and terms of service copyright © texas education...

Risk Assessment

Insurance Operations

“Copyright and Terms of Service

Copyright © Texas Education Agency. The materials found on this website are copyrighted © and trademarked ™ as the property of the Texas Education Agency and may not be reproduced without the express written permission of the Texas Education Agency, except under the following conditions:

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Risk and Insurance

Risk is the possibility of loss resulting from an event.

Insurance provides a method of managing risk by spreading the risk among a large group of people, which reduces the payments people make to help alleviate risk.

These payments are called premiums.3

Copyright © Texas Education Agency, 2013. All rights reserved.

Types of Risk

There are many types of risk that can be categorized in many different ways, but they generally include– Economic: may be out of your control / can affect

your job, savings, and income– Personal: includes risk to your person / possibly

due to injury, accident, or illness– Property- includes risk to “real property,” such as

your home or car due to theft, fire, or natural disasters

4Copyright © Texas Education Agency, 2013. All rights reserved.

Risk Strategies

Identify possible types of risks.

Assess potential value of loss due to risk.

Reduce the risk.


Degrees of Risk Strategizing

Once risks have been identified, you have options on how to handle the risks.

6

If the risk is in

your control, reduce

it by changing your actions

If the risk is in your control

but is too great a

risk, avoid the actions

altogether

Whether or not the risk is in

your control, you can assume the risk

and obtain insurance

as protection

Risk shifting

Risk avoidance

Risk Reduction


Identifying Possible Risks

Examine your daily routine– The drive to work or school

Assess your health – Any medical concerns, illnesses, etc.

Analyze your income and expenses– Savings, emergency fund

Look at your lifestyle– Adventurous, sports, hobbies


Risk Tolerance

Rutgers University has a risk tolerance quiz at http://njaes.rutgers.edu/money/riskquiz/. Take the quiz to determine your attitude toward risk, which can translate to your attitude toward your financial life, too.

Can show your need for insurance based upon your attitudes toward risk in the survey 8


http://njaes.rutgers.edu/money/riskquiz/

9

See how you answer any of the questions on the next four slides; you may need

insurance to provide protection in the event of a

loss.


Assessing Value of Risks-Routine

$ of car payments? Age and conditions of automobile(s)? Would you be able to rent or replace a car

in the event of an accident? Look at Kelly Blue Book or Edmunds to

determine current value.


Assessing Value of Risks-Health

Any existing health conditions? What if you fell ill and had to go to a doctor

or emergency room? What if you were to have surgery? Research costs and calculate costs if any of

these events have occurred.


Assessing Value of Risks-Income and Expenses

Calculate income and expenses per month. Do you have money in savings? Do you have an emergency fund to cover

three to six months of expenses? Would you be able to cut expenses or find

additional income if you lost a job?


Assessing Value of Risks-Lifestyle

Do you have hobbies that are expensive or that require expensive equipment?

Are you adventurous or do you play sports? What if you broke a bone doing any

activities? What if equipment was stolen?


Assessment Methods

Generally based on prior occurrence of similar events—comparison of similar losses

Risk is shared by a group of people with similar experiences even if not all of them have been directly affected (as in the case of tornado or hail damage, which can raise rates)

Credit-based scoring system- higher credit score, possibly lower insurance rates


Assessment Methods

National Vital Statistics Reports from the Centers for Disease Control and United States Life Tables show data used by actuaries

U. S. Census Bureau- health, income, and asset statistics (such as car and home ownership)


Statistical Methods

Poisson distribution- measures the number of events that occur during a specific time period

Stochastic models- uses past experiences to predict an estimate of value (of say, an insurance policy, assuming random variables) and keeps updating its estimates based on random events


Statistical Methods (cont.)

Frequency distribution- usually a graphical distribution of data (for example, the number and severity of claims in a given period)

Expected Value concept- knowing that there will be claims on an insurance policy, it places a value on the gain it will make on policies in the future


What is an Actuary? Actuary- uses data and statistics to assess

insurance risks and determine premiums An actuary

– Determines how reliable past experiences are as a predictor of actual performance

– Develops statistical models– Looks for variables that may affect actual

statistics– Considers inflation relative to future claims– Attempts to establish premiums 18


What are State Risk Pools?

State Risk Pools are designed to provide– insurance to individuals who may find it difficult to

acquire insurance unless it is very expensive – insurance that may be difficult to obtain because

of certain pre-existing conditions or other health conditions

– insurance if any other eligibility requirements apply

Covers medical and prescription expenses


New Risks in the Insurance Industry- E-Risks

Hacking- breaking into a computer network to alter it or access information

Identity theft- unlawfully accessing and using someone else’s identity for financial profit

Possible monetary damages- loss of wages, phone calls, postage, attorney fees, bank accounts

Damages may partially be covered under homeowner’s insurance policy 20


Independent Practice Assignments

Risk Identification Document Assignment #1 Students are to create a document of their choice that will focus on at least

three different risks that they either encounter now or will in the future. They will not only identify the risk, but assess their risk tolerance and explain their risk strategy for reducing the risk (at least two strategies for each identified risk). This document should show creativity.

Actuary Career Research Assignment #2 Students will conduct research on careers related to Actuarial Science. A

good resource is bls.gov. Click on Publications then on Occupational Outlook Handbook. They will create a two-column table of the data. The left column will have headings similar to earnings, education and training, what they do, job outlook, and related jobs. The right column will contain the details explaining the topics on the left. Other information may also be included.


Independent Practice Assignments (continued)

Student Survey Assignment #3 Students are to create a survey to give to students and parents. This survey

should include at least 10 questions of the students’ choosing. Questions can include topics such as: do they drive, have they had any tickets/how many, have they been in any car accidents, have they broken bones playing sports or doing hobbies, have they had any illnesses like the flu, and any other questions they would like to ask. They need to record the ages and gender for each person who participates. The students will then tally the results of their findings for each age group. It is okay if they only have the age group of high school students. They will report their findings on a poster or flipchart paper. They can also use charts or graphs to record their responses. The survey results should be easy to understand and creative in appearance. Then students should also include a risk assessment based on their survey findings. For example, if there are people who participate in risky sports or if there are people who have had speeding tickets or accidents.


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