Professional Documents
Culture Documents
CAREER
Preparation for a career in finance industry.
Financial Executive/Finance Manager/Business
Man etc.
CONSUMER
To improve knowledge about insurance to become
more knowledgeable consumers.
To learn how it can be used in personal financial
planning.
INSECURITY IN LIFE
Uncertainty of negative/harmful incidents that may
happen to us in the future.
We can learn how to be secure by buying
insurance.
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1:
T
ID
IN
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IO
K
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IMAGINE THIS
SITUATION
WITH INSURANCE
1. Need RM15,000
for my surgical
operation.
2. Need RM35,000
to repair house.
1. Need RM15,000
for my surgical
operation.
2. Need RM35,000
to repair house.
TOPIC 1.1
THE MEANING OF
RISK
DEFINITION OF RISK
Deviation in outcomes in a given situation
Uncertainty about the loss people may suffer in the future
Negative/harmful incidents that may happen to people
Examples: fire, collision, flood, sickness, premature death, etc
Used to indicate a condition of the real world in which there is a
possibility of loss (Vaughan & Vaughan, 2008).
Used by insurance practitioners to indicate the property insured or the
peril insured against (Vaughan & Vaughan, 2008).
PROBABILITY THEORY
Probability is as a study that measures the chance of
occurrence of a specific event.
There are three (3) probability theory used to determine the
chance of loss:
Priori probability
Empirical probability
Judgmental probability
PROBABILITY THEORIES
Priori Probability
Empirical Probability
Judgmental Probability
number of possible
of historical data
application because
data
TOPIC 1.2
THE CONCEPT OF LOSS, PERIL
& HAZARD
IMPORTANT CONCEPTS
Hazard
Peril
Loss
A condition that
increases the chance of
loss
A cause of loss
A reduction or
disappearance of
economic value
Example:
Poor brake
Types of hazard: Physical
hazard, moral hazard &
morale hazard
Example:
Motor Accident
Example:
Property damage, loss
of use, loss of income
EXAMPLES
LOSS
Property
damage
PERIL
Motor
Accident
HAZARD
Poor Brake
Moral Hazard
Morale Hazard
Character defect in an
individual that increases
the chance of loss
Character defect in an
individual that increases
the chance of loss with
the knowledge that the
insurance exists
Examples:
i. A buildings
structural defects
ii. A persons
occupancy
Examples:
i. Insured giving false
information to insurer
ii. Raising a claim with
exaggerated loss.
Examples:
i. Rash driving after
getting auto insurance.
ii. Keeping doors open
after purchasing an
insurance for house.
TOPIC 1.3
THE CLASSIFICATION OF
RISK
Fundamental risk
Particular risk
Differentiate by
outcomes
Pure risk
Speculative risk
Category 2
Differentiate by effects
Differentiate by outcomes
Fundamental Risk
Particular Risk
Pure Risk
Speculative Risk
Affects an entire
economy or a
group of people
within an economy
Affects an
individual
because it is the
result of individual
action or choice
Example:
Flood, typhoon,
inflation, mass
unemployment,
etc
Example:
Crossing a road,
driving a car, go
swimming, etc
Example:
The car driver
faces the risk of a
potential collision
loss
Example:
Investment in a
capital project
might be profitable,
incur losses or
reach breakeven
Property Risk
Liability Risk
Types/Examples: risk of
premature death, risk of
old age, risk of poor
health & risk of
unemployment
Example:
A person can accidentally
cause injury or damage
to others or their
property by his conduct
while driving.
Possibility to die in
a sudden or
unexpected death
Possibility of
insufficient
income during
retirement
Outcome:
loss of human
value, funeral
expenses, etc
Outcome:
not enough cash
to buy groceries,
not enough
money to survive
life, etc
Risk of poor
health
Risk of
unemployment
Outcome:
medical
expenses, loss of
earned income,
etc
Outcome:
loss of earned
income, depletion
of accumulated
financial assets,
etc
Indirect Loss
Extra Expenses
Damage to a property by
peril
Additional expenses
incurred as a result of
the loss
Example:
Loss of value of the
building as a result of fire
(Fire is the peril)
Example:
Loss of profit as a result
of business interruption
following damage on the
business premises
Example:
Cost of renovation or refixing of damage property
REVISION
Risk definition
Deviation in
outcome
Uncertainty
Harmful
incidents
Basic types of
risk
Fundamental &
particular
Pure &
speculative
Probability
theory
Priori
Empirical
Judgmental
Pure risk
Personal
Property
Liability
Vital concepts
Hazard
Peril
Loss
Personal risk
Premature
death
Old age
Poor health
Unemployment
Hazard
Physical
Moral
Morale
Loss related to
property
damage
Direct loss
Indirect loss
Extra expenses
GROUP ACTIVITY:
DISCUSS AND ANSWER
Group 1: Explain three (3) major types of loss associated with damage
of property.
Group 2: Describe two (2) main classifications of risk.
Group 3: Explain three (3) types of pure risk.
Group 4: Describe four (4) types of personal risk.
Group 5: Explain three (3) types of hazard.
Group 6: Describe three (3) probability theories.
Group 7: Distinguish between hazard, peril and loss. Give examples.
END OF CHAPTER
1
THANK YOU FOR YOUR ATTENTION