2016-09-14

MGMT 5000
RISK MANAGEMENT & ESTATE PLANNING
Risk Management

The Humber Business School

Sanjiv Sawh

Risk Management
Risk the probability of harm, injury, loss, danger

or destruction, occurring in the future.

Losses can be emotional, physical or financial

Risk Management
Speculative Risk vs. Pure Risk
1. Speculative Risk- has three alternatives
Loss
No change
Gain
2. Pure Risk- has two alternatives
Loss
No change

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Risk Management
Pure Risk 4 types
1. Personal Risk- death, disability & unemployment
2.

Property Risk- direct and indirect losses due to

material possessions

3.

Liability Risk due to carelessness or negligence

4.

Failure of others performance of service(s)

Risk Management
Perils and Hazards
Losses are caused by perils
1. Peril source of risk i.e. death, disability,
illness, accident, lawsuit & dishonesty

All pure risks exist because of perils.

2. Hazard an act or condition that increase the
probability of a peril or the severity of a loss.

Risk Management
Perils and Hazards
2. Hazard Physical, Morale or Moral
1.
2.
3.

Physical
Morale a persons attitude /carelessness that increase probability
of a loss
Moral dishonest behaviour i.e. falsifying insurance application

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Risk Management
Six Steps of the Risk Management Process
1. Establish the client-planner engagement
2. Gather client data and help your client establish
objectives
3. Clarify your client's present financial status and
identify any problem areas or opportunities
4. Develop risk management strategies and
present the plan
5. Assist with the implementation of the plan
6. Provide ongoing monitoring and planning
assistance

Risk Management
Six Steps of the Risk Management Process

1. Establish the client-planner engagement

Should include the financial planning process

How it will be documented
Services provided
Licensing
Compensation - method and amount
Responsibilities or client and planner

Risk Management

Six Steps of the Risk Management Process

2. Gather client data and help your client establish objectives
Identify exposure to risk - Life, health, property liability
Review financial situation personal financial statements
Family situation
Lifestyle and occupation*
Goals*

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Risk Management
Six Steps of the Risk Management Process

3. Clarify your client's present financial status and identify

any problem areas or opportunities
Assess the severity and potential loss of each risk
Critical risk very serious financial consequences
Material risk serious financial consequence that could
lead to a reduction in the standard of living
Minor risk little financial consequence with minor loss of
income and manageable expenses.
Probability - low, moderate or high

PROBABILITY
SEVERITY

HIGH

MEDIUM

LOW

CRITICAL

Death or disability
arsing from
regular
participation in
hazardous
activities of
employment

Long-term
disability from
natural or normal
causes

Premature death
or disability from
natural or normal
causes

Car accident with

no personal injury
Enhanced
hospitalization

Damage due to
flooding, fire
Theft
Unusual medical
expenses

Minor vandalism

Occasional
medical expenses

MATERIAL

MINOR

Minor property
damage
Prescription drugs

Risk Management
Six Steps of the Risk Management Process

4. Develop risk management strategies and

present the plan
1. Risk Control Strategy
1.
2.

Risk Avoidance
Risk Reduction

2. Risk Financing Strategy

1. Risk retention
2. Risk transference

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Risk Management
Six Steps of the Risk Management Process
5. Assist with the implementation of the plan
6. Provide ongoing monitoring and planning assistance

Risk Management
Insurance
Based on probability and pooling of risks
Pay premium for coverage of associated risks
Approve, decline or rate the risk

Risk Management
Insurance
Insurable risk
Large number of homogeneous units
Definite and measurable
Fortuitous or accidental
Other than catastrophic

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Risk Management
Insurance
Private companies stock and mutual companies
Co-operatives underlying association
Government Insurance CPP, workers comp, EI

Risk Management
Insurance
Licensing requirements
Registered to sell and advise of specific products
Ethical standards
Regulated