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Selection From Among RM Techniques (4 RM options (Deductible Insurance (FA…
Selection From Among RM Techniques
step 4 in RM process
Loss Matric
3 Possible RM options
Retention
Retention+safety measure
Full Insurance
each option has 2 types of cost
monetary cost
expected cost
expected loss
non monetary cost
cost of uncertainty/ worry value
unique to decision maker
Which RM should be chosen?
if decision rule is: -choose the alternative that
minimize
expected cost
total cost of each option
losses, wv(P*-Pmax), safety, insurance
4 RM options
Retention
Partial Insurance
FA
FA=10000
covered up to 10000
10000, insured conversion it
premium
Full Insurance
FA
premium
Deductible Insurance
FA
premium
deductible
Prefer?
ex. A person will
prefer FI
over Retention when
Total cost of FI
<
total cost of retention
700+WV(FI)< 460+WV(R)
700-460 < WV(R)-WV(FI)
so, choose FI 240 < WV(R)
if WV(R)<240, choose retention
if WV (R) = 240, indifference
WV increases when
Variability in losses :arrow_up:
c of v
Max. possible loss
size :arrow_up:
prob. of max pos. loss
financial strength :Arrow_down:
confidence of estimate of P* :arrow_down:
insurance coverage :arrow_down:
Qualitative Decision-Making Technique
loss exposure
F
high
low
S
high
low
Options
risk financing
retention
unfunded
funded
insurance
captive+RRGs
metrics
Low F Low S
retention(unfunded)
High F Low S
retention (funded)
LP
WC
High F High S
Avoaidance
First best solution :fire:
LP; LR; Captives; RRGs
Second best solution
Low F High S
Insurance