LECTURE NO 1.pdf insurance BBA studentsh

BBA students

1. LECTURE NO: 1
Principles of insurance and
risk management
Instructor : Aafia Mughal

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Definition:
Risk management is the process of identifying, assessing,
and prioritizing risks followed by coordinated efforts to
minimize, monitor, and control the impact or probability of
unfortunate events or to maximize the realization of
opportunities.

Importance:
It helps organizations anticipate potential threats and
opportunities, allowing them to make informed decisions and
allocate resources effectively to mitigate risks and capitalize
on opportunities.
RISK MANAGEMENT

3. RISKS
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Definition:
Risks are potential events or situations that may have a
negative impact on the achievement of objectives, goals, or
projects.

Types of Risks:
- Financial Risks: Associated with financial losses or
uncertainties such as market fluctuations, credit risks, or
currency fluctuations.
- Operational Risks: Arise from internal processes, systems, or
people and can include technological failures, human errors, or
supply chain disruptions.

4. CLASSIFICATION OF RISKS
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Risks can be classified into five broad
categories:
1. Catastrophic and important risks:
2. Financial and non-financial risks:
3. Dynamic and static risks:
4. Pure and speculative risks:
5. Fundamental and particular risks

5. Catastrophic and important risks:
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Catastrophic Risks:
- Definition: Catastrophic risks are events or situations that
have the potential to cause severe and widespread damage or
harm, often with far-reaching consequences.
- Examples: Earthquakes, pandemics, cybersecurity breaches.
Important Risks:
- Definition: Important risks are those that have a significant
impact on the organization's objectives, operations, or
strategic direction.
- Examples: Market volatility, regulatory changes, major shifts
in consumer preferences, or disruptive technological
advancements.

6. Financial and non-financial risks
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Financial Risks:
- Definition: Financial risks are those that can impact an
organization's financial health, profitability, or liquidity.
- Examples: Market risk (fluctuations in interest rates, exchange rates,
or commodity prices), credit risk (default by debtors or counterparties),
liquidity risk (inability to meet short-term financial obligations).
Non-Financial Risks:
- Definition: Non-financial risks are those that affect areas beyond
the organization's financial standing, including its reputation,
operations, and compliance.
- Examples: Reputational risk (damage to brand or public perception),
operational risk (failure of internal processes or systems, human error),

7. Dynamic and static risks
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Dynamic Risks:
- Definition: Dynamic risks are those that are constantly
evolving or changing over time, often influenced by external
factors or market conditions.
- Examples: Technological advancements, shifts in consumer
preferences, changes in regulations, or competitive landscape.
Static Risks:
- Definition: Static risks are those that remain relatively
constant or stable over time, with minimal variation or
fluctuation.
- Examples: Environmental factors (geographic location,
climate),

8. Pure and speculative risks:
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Pure Risks:
- Definition: Pure risks are those that involve only the
possibility of loss or no loss, without any chance of gain.
- Examples: Natural disasters (such as earthquakes or floods),
accidents, theft, or illness.
Speculative Risks:
- Definition: Speculative risks are those that involve the
possibility of both loss and gain, where there is uncertainty
about the outcome.
- Examples: Investments in stocks, commodities, or real
estate, entrepreneurship, or entering new markets.

9. Fundamental and particular risks
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Fundamental Risks:
- Definition: Fundamental risks are those that affect the
entire economy or industry, impacting a broad range of
entities within the market.
- Examples: Economic recessions, political instability,
Particular Risks:
- Definition: Particular risks are specific to individual
organizations or sectors and may not have a widespread
impact on the overall economy or industry.
- Examples: Product recalls, labor strikes, management
changes

10. HAZARD
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A hazard is something that makes it more likely for
something bad to happen. It's like adding fuel to a
fire.

For example, if there's a fire in a factory that makes
explosives, the explosives will make the fire spread
quickly and destroy everything very fast.

11. PHYSCAL HAZARD
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- Definition:
- Physical hazards are tangible and identifiable factors in the
environment that have the potential to cause harm to people,
property, or the environment.
- Examples:
- Natural Disasters: Earthquakes, floods, hurricanes,
tornadoes.
- Workplace Hazards: Machinery malfunctions, slips and falls,
ergonomic issues.
- Transportation Hazards: Vehicle accidents, airplane crashes,
train derailments.

12. MORAL HAZARD
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Definition:
- Moral hazard refers to the tendency of individuals or entities to take
greater risks or act recklessly when they are insulated from the
consequences of their actions, often because they are protected by
insurance, government bailouts, or other safety nets.
Examples:
- Insurance: When individuals with insurance coverage are less
cautious about protecting their property because they know they will
be compensated for any losses.
- Financial Markets: When banks or investors take on risky
investments because they believe they will be bailed out by the
government in the event of failure.

13. The end ??????