PowerPoint Slides for Professors - St. John's...
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4/12/2010 1 PowerPoint Slides for Professors Spring 2010 Version This file as well as all other PowerPoint files for the book, “Risk Management and Insurance: Perspectives in a Global Economy” authored by Skipper and Kwon and published by Blackwell (2007), has been created solely for classes where the book is used as a text. Use or reproduction of the file for any other purposes, known or to be known, is prohibited without prior written permission by the authors. Visit the following site for updates: http://facpub.stjohns.edu/~kwonw/Blackwell.html . To change the slide design/background, [View] Æ [Slide Master] W. Jean Kwon, Ph.D., CPCU School of Risk Management, St. John’s University 101 Murray Street New York, NY 10007, USA Phone: +1 (212) 277‐5196 E‐mail: [email protected] Risk Management and Insurance: Perspectives in a Global Economy 1. Introduction to Risk Management and Insurance This sample is printed in PDF. The actual files are in PowerPoint.
Transcript of PowerPoint Slides for Professors - St. John's...
4/12/2010
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PowerPoint Slidesfor Professors
Spring 2010 Version
This file as well as all other PowerPoint files for the book, “Risk Management and Insurance: Perspectives in a Global Economy” authored
by Skipper and Kwon and published by Blackwell (2007), has been created solely for classes where the book is used as a text. Use or
reproduction of the file for any other purposes, known or to be known, is prohibited without prior written permission by the authors.
Visit the following site for updates:
http://facpub.stjohns.edu/~kwonw/Blackwell.html.
To change the slide design/background,
[View] [Slide Master]
W. Jean Kwon, Ph.D., CPCUSchool of Risk Management, St. John’s University
101 Murray StreetNew York, NY 10007, USA
Phone: +1 (212) 277‐5196E‐mail: [email protected]
Risk Management and Insurance: Perspectives in a Global Economy
1. Introduction to Risk Management and Insurance
This sample is printed in PDF. The actual files are in
PowerPoint.
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Study Points
The importance of an international perspective
Risk management and economic growth
The language of risk and insurance internationally
The environment for risk and insurance internationally
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Risk and Economic Development (Figure 1.1)
Risk
Level of Economic Development
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Th I t f I t ti l P tiThe Importance of an International Perspective
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The Importance of an International Perspective
Decisions about how to deal with some risky activities and processes have become incredibly complex.
The world is getting smaller!
In most markets, a significant proportion of goods and services competes directly or indirectly with those of other countries. • The proportion of cross-border trade continues to grow worldwide.
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The Importance
“Foreign direct investment (FDI)” inflows tend to grow at rates greater than merchandise trade
Competitiveness is heightened as price differentiation becomes a less feasible alternative to improved operating efficiency.• Even firms not directly involved in international activities are affected.
I l b l h i k i d l i h llIn a global economy, the way risk is dealt with naturally differs to suit each country’s socio-cultural, demographic, political, and economic circumstances.
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The Importance
Decisions about how to deal with some risky activities and processes have become incredibly complex.
The world is getting smaller!
In most markets, a significant proportion of goods and services competes directly or indirectly with those of other countries. • The proportion of cross-border trade continues to grow worldwide.• See Figure 1.2
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World Merchandise Trade and GDP (Figure 1.2)
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Source: WTO
The Importance – FDI
The importance of “foreign direct investment (FDI)”• FDI inflows tend to grow at rates greater than merchandise trade
Competitiveness is heightened as price differentiation becomes a less feasible alternative to improved operating efficiency.• Even firms not directly involved in international activities are affected.
I l b l h i k i d l i h llIn a global economy, the way risk is dealt with naturally differs to suit each country’s sociocultural, demographic, political, and economic circumstances.
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Ri k M t d E i G thRisk Management and Economic Growth
Growing Importance of Risk Management
A rise in the number of high-value (highly protected) risksResource concentrationPollution as another externality
Risk management has assumed greater importance as its scope continues to expand.• Today, it finds application in minimizing financial risks to business
and in helping governments resolve public policy issues.
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Role of Risk Management in Economic Growth
Reduce long-term financial variability and render firms more competitive
From a macroeconomic standpoint, reduce the number of commercial and industrial enterprises that would otherwise become insolvent
Via effective loss control measures, reduce the frequency and severity of causes of economic losses, such as work-related injuries and work interruption
Reduce production costs, thus making goods and services at lower cost
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Defining Risk and Insurance
“International risk” and “international insurance” commonly refer to (1) unintended outcomes and (2) insurance transactions that transcend or cross national bo ndariestransactions that transcend or cross national boundaries.• International risk can also flow from the consequences of
international business activities.
The importance of the concepts on both a cross-border and comparative basis.
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Country Classifications – By State of Economic Development
Developed market economies• Also known as high-income
countries advanced
Developing economies• Also known as underdeveloped
countries undevelopedcountries, advanced countries, economically advanced countries, industrialized countries, the north, and the first world.
• “Newly industrialized economies”
countries, undeveloped countries, low- (or middle-) income countries, the south and the third world.
• Emerging markets• Economies in transition Least
developed countries
Centrally planned economies• Also known as planned
economies, Communist countries, and the second world
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World’s Distribution of GDP, Trade & Population (2002)
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World’s Distribution of GDP, Trade & Population (2009)
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Country Classifications by Membership
International OrganizationsInternational OrganizationsTh U it d N ti
Regional OrganizationsRegional OrganizationsTh O i ti f E iThe United Nations
The International Monetary FundThe World BankThe World Trade Organization (WTO)The World Health Organization (WHO)
The Organization for Economic Cooperation and DevelopmentThe European UnionThe North American Free Trade AgreementAssociation of Southeast Asian NationsAsia-Pacific Economic CooperationSouthern Cone Common MarketCommon Market for Eastern andCommon Market for Eastern and Southern Africa
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Other (newer) organizations?
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OECD Member Countries
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E.U. Members and Applicants
Map
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Risk Classifications
Risk
Loss exposure
Peril
Hazard• Physical hazard• Moral hazard
Risk Classifications – Risks
Pure risk
Fi i l i k
Operational (internal) risk• Personal risk
Personnel riskFinancial risk• Market risk
• Interest rate risk• Exchange rate risk• Other systematic risk
• Credit (counterparty) risk• Price risk
• Personnel risk• Property risk• Liability risk• Concentration risk• Reputational risk
Strategic risk
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Risk Management Process
The process• Risk analysis
Id tifi ti d l ti f th ibl t i t d• Identification and evaluation of the possible outcomes associated with events or activities
• Risk control• Exploration of techniques to control adverse outcomes
• Risk financing• How to finance the costs of adverse outcomes that occur
The view of risk management is changing• A fragmented approach to the management of risk is less effective
and efficient than an integrated approach that involves all the risks to which an entity is exposed.
Insurance Classifications
Social vs. private insurance
Life vs. nonlife insurance• Nonlife insurance also known as general insurance, property-
casualty and property-liability insurance• Life insurance dealing with:
• Death• Living a certain period
I it (di bilit d l t d)• Incapacity (disability and long-term care need)• Injury or incurring a disease
Chapter 9 (Social Insurance)Chapter 20 (Insurance Globally)
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Insurance Classifications
Personal vs. commercial insurance• Industrial insurance
L i k d i k i th E U• Large risks and mass risks in the E.U.
Direct insurance vs. reinsurance• Direct (writing) insurer, primary insurer• Direct premium
R i i• Reinsurer, assuming company• Reinsurance premium
• Retrocession and retrocessionaire Chap 21 (Life Insurance)Chap 22 (Nonlife Insurance)
Chap 23 (Reinsurance)
The Changing Environment and Risk Management
RapidlyChanging
GreaterUncertainty
Increased Need for Effectiveg g
Environmenty
Risk Management
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Di i Q tiDiscussion Questions
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Discussion Question 1
Is an appreciation for international events important to students of risk management and insurance, even if they intend to ork e cl si el for domestic firms ith nointend to work exclusively for domestic firms with no international operations?
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Discussion Question 2
Is the study of risk management becoming more or less important in your country?
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Discussion Question 3
What special risks would you expect multinational corporations to encounter that purely national firms ordinaril o ld not enco nter? Spec late abo t some ofordinarily would not encounter? Speculate about some of the ways of dealing with such special risks.
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Discussion Question 4
Randomly select one economically developed country and one developing country, and compare classification of ins rance bet een the t o co ntriesinsurance between the two countries.
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Discussion Question 5
What do you think are the prerequisites for the development of insurance in economically underdeveloped countries?
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