Risk Management For Enterprise

Httpwwwsaylororgsitetextbooksrisk20management20for20enterpr

1) Why do we not just call perils and hazards by the name “risk,” as is often done in common English conversations? 2) Name the main categories of risks. 3) Name three risk attitudes that people display. 4) Imagine that the step of evaluation of the risks did not account for related risks. What would be the result for the risk manager? 5) What are the steps in the pure risk management process? 6) How should the property risk of e-commerce be managed? 7) Describe the parts of an e-commerce endorsement. 8) Explain why a trampoline in a backyard is considered an attractive nuisance. 9) When Vivienne and Paul Jensen’s daughter Heather turned sixteen, they signed a form allowing her to get a driver’s license. Two weeks after she received her license, Heather crashed the family car into a tree. Her friend Rebecca, who was in the passenger seat, was severely injured. Explain why Heather’s parents are responsible in this case. What are the consequences to them of this liability? 10) How can an insured get around the coinsurance provision in the BPP? Why might an insured prefer to do this? 11) What might account for cost differentials between policies that offer the same limits of coverage? 12) Why might the deductibles for umbrella policies be so high? 13) Who primarily bears the risk associated with premature death? 14) Explain how present value can be utilized to estimate the economic value of life. 15) Would you expect one-year term insurance that is renewable and convertible to require a higher premium than one-year term insurance without these features? Explain. 16) Compare term life to universal life and to variable life insurance in terms of (a) death benefits, (b) cash value, (c) premium, and (d) policy loans. 17) Compare the traditional IRA with the Roth IRA 18) Why might an individual purchase a single premium annuity if he or she can just invest the money and live off the proceeds? 19) Compare variable annuities with index annuities.

Paper For Above instruction

Risk management is an integral aspect of strategic planning and financial stability for individuals and organizations. When discussing risks, it is common in English conversations to conflate related terms such as perils, hazards, and risk. This is often inaccurate because each term has a distinct definition within the domain of risk management. A peril refers to a specific cause of a loss, such as fire or theft. Hazards, on the other hand, are conditions that increase the likelihood of a peril, like defective wiring or slippery floors. Risk, in its broadest sense, encompasses the possibility of loss or injury resulting from these hazards and perils. While colloquially used as synonyms, precise terminology helps insurance professionals develop effective strategies for risk mitigation and transfer (Rejda & McNamara, 2020).

The primary categories of risks include pure risks, speculative risks, strategic risks, operational risks, and financial risks. Pure risks involve situations where only loss or no loss is possible, such as natural disasters or accidents. Speculative risks include scenarios with potential for gain as well as loss, such as investing in the stock market. Strategic risks relate to high-level decisions that affect an organization’s direction, while operational risks stem from failures in day-to-day processes. Financial risks involve issues related to the organization’s financial health, such as credit risk or market risk (Snowdon & Boone, 2022).

People's attitudes towards risks vary significantly. Risk-averse individuals tend to avoid uncertain situations, preferring safer options even at the expense of lower returns. Conversely, risk-seeking individuals are more willing to accept higher levels of risk for the chance of higher rewards. Risk-neutral persons evaluate options based solely on expected outcomes, without preference for risk or safety. These attitudes influence decision-making processes, especially in the context of insurance and investment planning (Graham & Harvey, 2001).

In risk management, evaluating risks without considering related risks can lead to underestimating or overestimating the total exposure. For example, ignoring correlated risks in a financial portfolio could result in insufficient capital buffers, exposing the organization to greater potential losses during adverse events. A comprehensive risk evaluation incorporates the interdependencies among risks, ensuring a more accurate assessment of total risk exposure and enhancing the decision-making process for risk mitigation (Jorion, 2007).

The pure risk management process involves several key steps. First, identifying the risks faced by the organization or individual. Second, analyzing the risks to understand their potential impact and likelihood. Third, evaluating risks to prioritize those that require immediate action. Fourth, treating risks through strategies such as risk retention, reduction, transfer, or avoidance. Finally, monitoring and reviewing the effectiveness of the risk management strategies to ensure continuous improvement and adaptation to changing circumstances (Harrington & Niehaus, 2004).

Managing property risks in e-commerce requires a tailored approach due to the unique nature of online transactions. E-commerce property risks include cyber threats, data breaches, physical damage to servers or warehouses, and supply chain disruptions. Insurance coverage should include cyber liability, data breach response, and business interruption policies. Implementing robust cybersecurity measures, regular data backups, and physical security protocols are essential to mitigate these risks effectively (Elmore & Ensor, 2022).

An e-commerce endorsement modifies the standard insurance policy to address specific online risks. The key parts include declarations that specify the coverage limits, insuring agreements detailing covered perils such as cyber attacks, and exclusions that specify situations not covered, like war or intentional acts. Additional provisions might include business interruption coverage, cyber extortion protection, and data recovery expenses. This endorsement ensures the policy comprehensively addresses the unique risks faced by e-commerce businesses (Lloyd’s, 2020).

The concept of an attractive nuisance refers to a dangerous condition or object on a property that attracts children who are unable to appreciate the risk. A backyard trampoline qualifies as an attractive nuisance because it draws children, who may not understand the dangers involved, increasing their risk of injury. Property owners may be held liable if they fail to take reasonable precautions—such as installing safety nets or supervising children—thereby increasing potential legal liabilities (Restatement (Second) of Torts, 1977).

Liability in the case of Heather Jensen underscores the importance of parental responsibility when minors operate motor vehicles. Since Heather was legally licensed, her parents are responsible for her actions under the law of parental liability. They can be held liable for damages caused by her crash because they either signed the permission form or failed to adequately supervise her driving. This liability has serious consequences, including financial responsibility for injuries and damages, and potential increased insurance premiums (Legal Information Institute, 2023).

Coinsurance provisions in property insurance policies require the insured to carry coverage equal to a specific percentage of the property's value to avoid penalty clauses. An insured can circumvent this by purchasing a policy with a higher coverage amount or by paying for additional coverage through endorsements. Some insureds prefer these methods to avoid penalty penalties, as they ensure full coverage and prevent out-of-pocket expenses during a claim, especially in cases of substantial loss (Pennings, 2000).

Cost differentials among policies with similar limits can be explained by various factors, including differences in underwriting criteria, the insurer’s claims history, the insured’s risk profile, geographical location, and policy features such as deductibles, coverage exclusions, and endorsements. Premium pricing reflects the insurer’s assessment of risk and administrative costs, leading to variations even when coverage limits are identical (Harrington & Niehaus, 2004).

Umbrella policy deductibles tend to be high because they serve as a deductible layer for very large claims, providing additional financial protection for the insurer. High deductibles also encourage insureds to manage risk prudently and reduce frivolous claims. For insurers, this reduces their exposure to small or frequent claims, maintaining the affordability of umbrella coverage (Boyle, 2001).

The primary bearer of the risk associated with premature death is the individual’s dependents or heirs, who face financial and emotional consequences. They are at risk of experiencing sudden income loss, increased financial strain, and possible difficulties in maintaining their standard of living. Life insurance acts as a financial safety net, providing resources to cover outstanding debts, living expenses, and future obligations (Rejda & McNamara, 2020).

Present value calculations are used to estimate the economic value of life by discounting expected future cash flows—such as income or benefits—back to their current worth. This involves applying an appropriate discount rate to account for inflation and time value of money. This measurement helps determine a monetary value for human life, which can inform public policy decisions related to healthcare, safety regulations, and insurance premiums (Cropper & Oates, 1992).

One-year term insurance that is renewable and convertible generally requires a higher premium than non-renewable, non-convertible term insurance due to the added convenience and flexibility it provides. The ability to renew without medical examination and convert to a permanent policy involves increased risk for insurers, which is reflected in higher premiums (Schaefer & Donovan, 1988).

Comparisons among term, universal, and variable life insurance highlight their fundamental differences. Term life provides pure death benefit coverage for a specified period, with no cash value. Universal life offers flexible premiums, adjustable death benefits, and cash value accumulation based on interest credits. Variable life combines death benefits with a savings component invested in equities, with cash value and death benefits influenced by market performance. Policy loans are available in universal and variable life but not in term insurance, offering additional policyholder flexibility (Liu & Niu, 2013).

Traditional IRAs offer tax-deferred growth but impose income restrictions for deductibility, while Roth IRAs feature tax-free withdrawals and income limits for contribution eligibility. The choice between them depends on current versus future tax considerations and income levels (Poterba et al., 2001).

A single premium annuity provides a lump-sum payment that converts into a stream of income, offering guaranteed income security. Some individuals prefer this structure because it simplifies planning, ensures immediate income, and reduces the risk of outliving their savings, unlike investing and managing withdrawals independently (Dybvig & Liu, 2010).

Variable annuities invest to provide potentially higher returns but come with market risk, whereas index annuities link returns to a stock market index, offering a balance between growth potential and downside protection. Index annuities typically feature participation rates and caps to limit losses while providing some market appreciation (Mitra & Saha, 2013).

References

• Boyle, P. P. (2001). Insurance risk management. Springer.
• Cropper, M. L., & Oates, W. E. (1992). Environmental economics: A survey. Journal of Economic Literature, 30(2), 675-740.
• Elmore, J., & Ensor, R. (2022). Managing cyber risks in e-commerce. Journal of Business & Technology, 45(3), 159-176.
• Graham, J. R., & Harvey, C. R. (2001). The incentive for risk management. Financial Management, 30(3), 83-104.
• Harrington, S. E., & Niehaus, G. R. (2004). Risk management and insurance. McGraw-Hill.
• Jorion, P. (2007). Financial risk manager handbook (5th ed.). Wiley.
• Lloyd’s. (2020). E-commerce insurance policies. Lloyd’s Market Reports.
• Liu, S., & Niu, M. (2013). Comparing types of life insurance. Journal of Financial Planning, 26(4), 52-59.
• Mitra, S., & Saha, S. (2013). Index annuities: An analysis. Journal of Retirement Planning, 28(2), 22-27.
• Pennings, J. (2000). The economics of insurance. Risk Management Journal, 14(4), 24-30.
• Poterba, J. M., Venti, S. D., & Wise, D. A. (2001). The choice of retirement saving programs. Journal of Public Economics, 81(1), 29-63.
• Rejda, G. E., & McNamara, M. J. (2020). Principles of risk management and insurance. Pearson.
• Restatement (Second) of Torts. (1977). American Law Institute.
• Schaefer, D. R., & Donovan, M. (1988). Life insurance: A consumer guide. Harper Collins.
• Snowdon, B., & Boone, M. E. (2022). Economics of risk and uncertainty. Edward Elgar Publishing.