Risk Management and Insurance Notes
Subject Overview
Risk Management and Insurance is the second Banking & Insurance elective, covering how organisations and individuals identify, evaluate, and mitigate risk through insurance. You'll cover the concept and types of risk, techniques for identifying and evaluating risk, the fundamentals of insurance contracts and principles, and close with the regulatory framework of insurance under the IRDA and how insurance premiums and losses are actually computed. This is a 6-credit elective paper across 4 units, complementary to Insurance Services Management from Semester 5.
Subject at a glance
4
Units
30
Topics
6
Credits
4
Infographics
Unit-wise Syllabus
4 units — open any unit for detailed topic-wise notes, diagrams and important exam questions
- Risk and uncertainty
- types and sources of risk
- methods of handling risk
- degree of risk
- corporate and personal risk management process
- objectives and techniques of risk management
- understanding the cost of risk
Avoid
Do not take the activity
Reduce
Safety measures lower the chance or impact
Retain
Bear small risks yourself
Transfer
Insure or contract it out
Study guide
This unit introduces risk and uncertainty, types and sources of risk, methods of handling risk, degree of risk, the corporate and personal risk management process, objectives and techniques of risk management and understanding the cost of risk. Distinguish pure risk from speculative risk with examples.
- Tools and techniques for perceiving risk
- methods for determining operative causes of peril
- safety audits
- risk avoidance and reduction methods
- role of surveyors
- retention of risk
- captive insurance companies
- 1Identify
List possible risks
- 2Measure
Likelihood and impact
- 3Choose a method
Avoid, reduce, retain, transfer
- 4Implement
- 5Monitor and review
Study guide
You study tools and techniques for perceiving risk, methods of determining the operative causes of peril, safety audits, risk avoidance and reduction, the role of surveyors, retention of risk and captive insurance companies. Learn the four basic ways of handling risk: avoid, reduce, retain and transfer.
- Definition and basic characteristics of insurance
- requirements of an insurable risk
- adverse selection
- insurance vs. gambling vs. hedging
- essentials and principles of insurance contracts
- life
- general
- health
- marine and automobile insurance
Insurance
No, transfers an existing risk
Protection from loss
Gambling
Yes, creates new risk
Chance of gain
Hedging
No, offsets an existing risk
Reduce price risk
Study guide
You study the definition and characteristics of insurance, the requirements of an insurable risk, adverse selection, how insurance differs from gambling and hedging, the essentials and principles of insurance contracts, and life, general, health, marine and automobile insurance. Be able to state the principles of insurance with an example for each.
- Role
- power and functions of the IRDA
- composition and the IRDA Act 1999
- control of malpractices and negligence
- computation of insurance premium
- loss assessment and control
- exclusion of perils
Pure premium
Expected losses / number of exposures
Gross premium
Pure premium + expenses + profit margin
Loss ratio
Claims paid / premium earned × 100
Study guide
The final unit covers the role, powers and functions of the IRDA(I), the IRDA Act 1999, control of malpractices and negligence, computation of insurance premium, loss assessment and control and exclusion of perils. Practise a simple premium calculation.
Why Risk Management and Insurance Matters
Risk management and insurance knowledge is useful in finance, banking, corporate management and insurance careers, and it supports professional insurance exams.
How to Prepare for Risk Management and Insurance
- Learn the principles of insurance with one real example each.
- Prepare a table comparing insurance, gambling and hedging.
- Follow IRDAI circulars for current rules.
Risk Management and Insurance: Frequently Asked Questions
What is an insurable risk?
An insurable risk is a pure risk that is measurable, accidental, affects many similar people and would cause a definite financial loss.
What is adverse selection?
Adverse selection is the tendency of higher-risk people to seek insurance more than lower-risk people, which insurers manage through underwriting and pricing.