RMIN 317 Lecture Notes - Lecture 2: Corporate Social Responsibility, Net Present Value, Liability Insurance

• School: University of Calgary
• Department: Risk Management and Insurance
• Course: RMIN 317
• Professor: Martin Halek

Document Summary

Refers to expenditures of time, effort, and money to reduce expected losses. Loss avoidance: do not engage in the activity at all so that the probability of loss becomes zero. Example: investing in fire-fighting equipment to reduce the magnitude of loss from a fire, but this investment does not prevent a fire from occurring. Diversification of risk changed the probability distribution of losses in a way that keeps expected direct losses constant, but reduces the variance of losses. Installation of safety guards business interruption losses. Reduced expected losses retained under per occurrence deductibles. Lowers workers" compensation premiums in the form of possible upfront premium rate reductions for safer equipment and lower experience rating surcharges for poor experience if injuries are reduced company overtime. Increasing safety for children means that the premiums for product liability insurance will decline. The marginal benefit must equal or exceed the marginal cost. The marginal cost equals the change in the loss control expenditures.