Managing Risk; Insurance Fundamentals Monday October 31, 2011 David A. KnappRiskHow is Risk Managed? Avoid itHow is Risk Managed? Prevent or minimize itHow is Risk Managed? Accept itHow is Risk Managed? Transfer itInsurance Not all risks are insurableInsurable Risk Substantial $$ loss is possibleInsurable Risk Unpredictable for the individual, but predictable for the groupInsurable Risk Occurrences are independentInsurable Risk No moral hazardTypes of Commercial Insurance Property insurance - Buildings, equipment - Cash is not insurableProperty insurance -Fire -Smoke, water damage -Usually not flood, riotsTypes of Commercial Insurance Property insurance - Coinsurance - Additional meaning in this context - For stated coinsurance to apply to a loss, defined level of coverage is required.Types of Commercial Insurance Property insurance - Coinsurance example - “20% coinsurance if coverage level is maintained at 80% of cost or replacement value or higher” - if not, penalty appliesExample continued • Property valued at $100,000 – If insurance is at least $80,000, it will pay 80% and insured 20% for any size claim up to $80,000. – But, if insurance is only $50,000, it will pay 80% of only 5/8 ($50,000/$80,000) of any size claim up to $50,000.Types of Commercial Insurance Liability and casualty insurance - Protection against loss from negligence - Does not protect against things like wrongful termination, discrimination, sexual harassmentTypes of Commercial Insurance Workers’ compensation - State government programTypes of Commercial Insurance Business interruption protection -Subject to coinsurance provisions based upon profitability coverageTypes of Commercial Insurance Key person insuranceSummary: Types of Commercial Insurance • Property • Liability and casualty • Workers’ compensation • Business interruption • Key personPersonal Insurance • Home, auto, personal property • Liability • Professional liability – Umbrella or excess liability • Life • Disability • Nursing