BA 219 – PRINCIPLES OF RISK AND INSURANCE

Course Description and Scope

In everyday life, we are exposed to numerous risks that can affect our persons or our
property. We do not know when such an event may occur, nor how large a loss it may
cause. An individual's own financial means are usually not sufficient to meet a large
loss. Similarly, companies look for financial protection elsewhere, usually by way of
insurance.

University surveys in the US repeatedly show that risk management and insurance
courses usually score near the top in enrolment popularity, and graduates often rank the
courses as the most useful courses they took. The aim of this course is to provide a
working knowledge of the Principles of Insurance and Risk Management. It serves as an
indispensable foundation and enables the students to proceed to the study of the rest of
the courses on risk and insurance in subsequent years. This course is also useful for
students specialising in other majors and enables them to become intelligent users of
insurance and risk management products.

Proposed Lecture Schedule

Week No. Topics Readings

1 1 The Risk Management Problem
1.1 The human race & risk VE
1.2 The concept of risk ch 1, 2
1.3 The burden of risk
1.4 Techniques for dealing with risk CII
1.5 Business risk management ch 1
2 The Risk Management Solution
2.1 The history of modern risk management RM
2.2 Definition of risk management ch 1
2.3 The risk management process
2.4 Misconceptions about risk management T&G
2.5 The risk manager’s job ch 1
2.6 The non-professional risk manager
2.7 Outside risk management services

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2 3 Risk Management Decisions
3.1 The tools of risk management VE
3.2 Good and bad risk management decisions ch 3, 4
3.3 Cost-benefit analysis
3.4 Utility theory & risk management decisions RM
3.5 Decision theory & risk management decisions ch 2
3.6 The rules of risk management
3.7 Risk management and insurance buying
4 Evaluation and Review of Risk Management Programs
4.1 General evaluation and review
4.2 Risk management audits
4.3 Scope of risk management audits
4.4 Insurance survey

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3 5 Risk Management Objectives
5.1 The need for risk management objectives VE
5.2 Objectives of risk management ch 5, 6
5.3 Quantitative objectives
5.4 Risk management’s contribution to the CII
organisation ch 3, 4
5.5 The risk management policy
6 Risk identification RM
6.1 Responsibility for risk identification ch 3, 4, 5
6.2 Risk identification methodologies
6.3 Risk identification tools T&G
6.4 Risk identification techniques ch 2
6.5 Risk management information systems
4 7 Measuring severity
7.1 Importance of loss severity in ranking exposures VE
7.2 The prouty measures of severity ch 7, 8
7.3 Measuring property loss exposures
7.4 Measuring indirect loss exposures CII
7.5 Measuring criminal loss exposures ch 5, 6, 7
7.6 Measuring legal liability exposures
8 Measuring frequency RM
8.1 Usefulness of quantitative analysis ch 6, 7
8.2 Probability models for risk management
8.3 Correlation and linear regression WSY
8.4 Simulation models ch 3, 4
8.5 Insurance rates and underwriting as risk
measurements
5 9 Risk control
9.1 Historical neglect of risk control VE
9.2 The risk manager and risk control chapter 9
9.3 Theories of accident causation
9.4 Approaches to loss prevention and control CII
9.5 Systems safety ch 2, 8
9.6 Sources of assistance for risk control
9.7 Disaster planning RM
10 Non-Insurance transfers ch 20
10.1 Contractual clauses
10.2 Unfair Contract Terms Act T&G
ch 3

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6 11 Insurance transfers VE
11.1 The nature and functions of insurance ch 10, 11,
11.2 Elements of an insurable risk 12
11.3 Insurer pricing
11.4 Underwriting CII
11.5 Competition in the insurance industry ch 9, 10,
11.6 Insurance shortages 11
11.7 Access to the insurance market
12 Regulation of the insurance industry RM
12.1 Why government regulates insurance? ch 18, 19
12.2 Areas regulated
7 13 Legal principles relating to insurance buying
13.1 Insurance and the law of contracts VE ch 13
13.2 Principles of indemnity
13.3 Insurable interest CII ch
13.4 Subrogation
13.5 Contribution
13.6 Principles of utmost good faith
13.7 Misrepresentation
13.8 Warranties
13.9 Policy construction
8 14 Risk retention
14.1 Classification of risk retention techniques VE
14.2 Financing losses versus financing risk ch 14, 15
14.3 Self-insurance
14.4 Combining retention and transfer RM
15 Alternative risk transfer/financing ch 15, 16,
15.1 Types of ART/ARF 17
15.2 Types of captives
15.3 Taxation of captives
15.4 Structuring the captive
9 Recess
10 16 Managing property risks
16.1 Avoiding property risks VE
16.2 Non-insurance transfers ch 16, 17
16.3 Fire prevention and loss control
16.4 Risk control measurements for other perils RM
16.5 Salvage operations ch 8, 9
16.6 Overview of property insurance products
11 17 Managing business interruption risks
17.1 Controlling business interruption exposures VE ch 18
17.2 Types of business interruption insurance

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 12 18 Other general insurance products
18.1 Theft policies VE
18.2 Financial guarantee policies ch 19 to
18.3 Inland transit policies 28
18.4 Marine cargo and hull policies
18.5 Motor and Workmen's Compensation policies RM
18.6 Public liability and product liability policies ch 10
18.7 Other policies
13 19 Overview of life and employee benefit insurance
19.1 Types of life and disability insurance products VE ch 29
19.2 Key employee insurance to 34
19.3 Types of Employee Benefit Programs
20 Summary and review

Basic Texts

VE Vaughan, Emmett J.
Risk Management
John Wiley, 1997
HD 61.V365

CII Chartered Insurance Institute

Risk and Insurance
HG 8054.5 D554

RM Chartered Insurance Institute

Risk Management
HD 61 R595r

Other References:

CGI Singapore Insurance Institute

Certificate In General Insurance Course Book
HG 8049.S56 C418

DGI Singapore Insurance Institute

Diploma In General Insurance Course Books:
GD 01 Elements of Law and Insurance
GD 02 Insurance of Property
GD 03 Insurance of Liabilities
GD 04 Motor, Marine and Other Classes
GD 05 Elements of Insurance Company Operations
GD 06 Elements of the Law of Commerce

T & G Trieschmann and Gustavson

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 Risk Management and Insurance,
South-Western, 9 th Edition, 1995
WSY C. Arthur Williams, Michael Smith, Peter Young
Risk Management and Insurance
McGrall-Hill, 7 th Edition, 1995

Vaughan, Emmett J. and Vaughan, Therese M.

Essentials of Insurance: A Risk Management Perspective
John Wiley, 1995

Vaughan, Emmett J. and Vaughan, Therese M.

Fundamentals of Risk and Insurance
John Wiley, 7 th Edition, 1996

Harrington, Scott E. and Niehaus, Gregory R.

Risk Management and Insurance
McGrall-Hill, 1999

Mark S. Dorfman
Introduction To Risk Management and Insurance
Prentice Hall, 6 th Edition, 1996

Dickson & Steele

Introduction To Insurance, Pitman
HG8051 D554

Michael G. Collins
Introduction To Insurance, Witherby
HG8051 C712

ARM 55 Course Guide, Essentials of Risk Control,

Insurance Institute of America
HG8048.I59 ARM55 1995

ARM 56 Course Guide, Essentials of Risk Financing,

Insurance Institute of America HG8048.I59 ARM56 1995

Journals:

Asia Insurance Review (pHG 8694.85.A832)

Risk Management (pHD 61.R595)
Risk Management Manual Guide (pHD 61.W287)
Risk Update (pHD 61.R595)
Captive Insurance Company Reports (pHG 8104.C254)
Captive Insurance Company Review (pHG 8104.C254)
The Review (pHG 8013.R454)
World Insurance Report (pHG 8103.F948)
Claims (pHG 8107.C585)
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Method of Instruction

Lectures: 2 hours per week

Tutorials: 2 hours per week

Lectures commence in Week 1 and end in Week 13

Tutorials commence in Week 2 and end in Week 14

Course Assessment

Written Assignments: 5%
Oral Presentation : 5%
Participation : 5%
Projects : 15%
Final Examination : 70%
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100%
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Lecturer Office Room No. DID E-mail Address

A/P Yee Wah Chin * B1b-64 790 5718 awcyee@ntu.edu.sg

* Course Co-ordinator