Risk Management for Enterprises and Individuals

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Etti Baranoff, Virginia Commonwealth University
Patrick Brockett, University of Texas, Austin
Yehuda Kahane, Tel Aviv University

Pub Date: 2009

ISBN 13: 978-0-9823618-0-1

Publisher: Saylor Foundation

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Reviewed by Sang-Phil Kim, Assistant Professor, Winona State University, on 8/22/2016.

The text covers a broad range of areas, especially insurance industries even though it has a weak theoretical foundation part. It would be a good … read more

 

Table of Contents

  • Chapter 1: The Nature of Risk: Losses and Opportunities
  • Chapter 2: Risk Measurement and Metrics
  • Chapter 3: Risk Attitudes: Expected Utility Theory and Demand for Hedging
  • Chapter 4: Evolving Risk Management: Fundamental Tools
  • Chapter 5: The Evolution of Risk Management: Enterprise Risk Management
  • Chapter 6: The Insurance Solution and Institutions
  • Chapter 7: Insurance Operations
  • Chapter 8: Insurance Markets and Regulation
  • Chapter 9: Fundamental Doctrines Affecting Insurance Contracts
  • Chapter 10: Structure and Analysis of Insurance Contracts
  • Chapter 11: Property Risk Management
  • Chapter 12: The Liability Risk Management
  • Chapter 13: Multirisk Management Contracts: Homeowners
  • Chapter 14: Multirisk Management Contracts: Auto
  • Chapter 15: Multirisk Management Contracts: Business
  • Chapter 16: Risks Related to the Job: Workers’ Compensation and Unemployment Compensation
  • Chapter 17: Life Cycle Financial Risks
  • Chapter 18: Social Security
  • Chapter 19: Mortality Risk Management: Individual Life Insurance and Group Life Insurance
  • Chapter 20: Employment-Based Risk Management (General)
  • Chapter 21: Employment-Based and Individual Longevity Risk Management
  • Chapter 22: Employment and Individual Health Risk Management
  • Chapter 23: Cases in Holistic Risk Management

About the Book

This book is intended for the Risk Management and Insurance course where Risk Management is emphasized.

When we think of large risks, we often think in terms of natural hazards such as hurricanes, earthquakes or tornados. Perhaps man-made disasters come to mind such as the terrorist attacks in the U.S. on September 11, 2001. Typically we have overlooked financial crises, such as the credit crisis of 2008. However, these types of man-made disasters have the potential to devastate the global marketplace. Losses in multiple trillions of dollars and in much human suffering and insecurity are already being totaled, and the global financial markets are collapsing as never before seen.

We can attribute the 2008 collapse to financially risky behavior of a magnitude never before experienced. The 2008 U.S. credit markets were a financial house of cards. A basic lack of risk management (and regulators' inattention or inability to control these overt failures) lay at the heart of the global credit crisis. This crisis started with lack of improperly underwritten mortgages and excessive debt. Companies depend on loans and lines of credit to conduct their routine business. If such credit lines dry up, production slows down and brings the global economy to the brink of deep recession—or even depression. The snowballing effect of this failure to manage the risk associated with providing mortgage loans to unqualified home buyers have been profound, indeed. When the mortgages failed because of greater risk- taking on the Street, the entire house of cards collapsed. Probably no other risk-related event has had, and will continue to have, as profound an impact world wide as this risk management failure.

How was risk in this situation so badly managed? What could firms and individuals have done to protect themselves? How can government measure such risks (beforehand) to regulate and control them? These and other questions come to mind when we contemplate the consequences of this risk management fiasco.

Standard risk management practice would have identified sub-prime mortgages and their bundling into mortgage-backed-securities as high risk. People would have avoided these investments or would have put enough money into reserve to be able to withstand defaults. This did not happen. Accordingly, this book may represent one of the most critical topics of study that the student of the 21st century could ever undertake.

Risk management will be a major focal point of business and societal decision—making in the 21st century. A separate focused field of study, it draws on core knowledge bases from law, engineering, finance, economics, medicine, psychology, accounting, mathematics, statistics and other fields to create a holistic decision-making framework that is sustainable and value- enhancing. This is the subject of this book.

About the Contributors

Author(s)

Etti Baranoff is an associate professor of risk management, insurance, and finance at the School of Business at Virginia Commonwealth University (VCU) in Richmond, Virginia, where she has taught since 1995. She has been in the insurance field for over thirty years. Prior to entering academia, she worked in the insurance industry and as a Texas insurance regulator. She began her insurance career as a pension administrator and market and product research analyst at American Founder’s Life Insurance Company in Austin, Texas, in 1978. In 1982 she began a twelve-year career as a Texas insurance regulator, beginning with actuarial work for the rate promulgation of property/casualty lines of insurance, following with legislative research work on all topics.

Dr. Baranoff has authored or co-authored more than fifty papers relating to risk management and insurance. Her work, which considers issues such as capital structure, detection of potential insolvencies, asset allocation and performance, and market discipline, is all within the context of enterprise risk and enterprise risk management. She has received various honors and recognitions during her career, including five awards given by the International Insurance Society (2008, 2006, 2004, 1996, and 1995). She was recognized as the 2005 Distinguished Scholar by the VCU School of Business and was a seven-time winner of research awards given by the business school. She was also the recipient of the 1990 Spencer Scholarship Award (RIMS) and the 1989 Vestal Lemmon Presidential Scholarship at the University of Texas at Austin.

In addition to her PhD in finance with minors in insurance and statistics from the University of Texas at Austin in 1993 and her BA in economics and statistics from the University of Tel Aviv, Israel, in 1971, Dr. Baranoff also holds the fellow of Life Management Institute designation with distinction. 

Patrick L. Brockett holds the Gus S. Wortham Memorial Chair in Risk Management and Insurance in the Department of Information, Risk, and Operations Management at the University of Texas at Austin. He is the director of the risk management program and the director of the Center for Risk Management and Insurance Research and holds a joint appointment as a full professor in the departments of Information, Risk, and Operations Management; Finance; and Mathematics. Prior to becoming the director of the risk management program, he served as the director of the actuarial science program at the University of Texas at Austin. He is the former director of the Center for Cybernetic Studies and is a fellow of the Institute of Risk Management, a fellow of the Institute of Mathematical Statistics, a fellow of the American Statistical Association, a fellow of the Royal Statistical Society, and a fellow of the American Association for the Advancement of Science.

Dr. Brockett has taught and done research in the fields of risk, insurance, and actuarial science for almost thirty years. His research articles have won awards from the American Risk and Insurance Association, the American Statistical Association, the Society of Actuaries, the International Insurance Society, and the Casualty Actuarial Society, as well as from the Faculty of Actuaries of Scotland and Institute of Actuaries in England. He is listed as one of the top ten most published researchers in the world in the seventy-five-year history of the Journal of Risk and Insurance (the premier academic journal in risk management and insurance in the world) in terms of the number of pages published. He was presented with the American Risk and Insurance Association Outstanding Achievement Award, won the Robert I. Mehr Award given by the American Risk and Insurance Association “for that journal article making a ten-year lasting contribution to risk management” and having “withstood the test of time,” and won the Halmsted Prize for the Most Outstanding English Language Publication in Actuarial Science in the World, presented by the Society of Actuaries. He served as editor of the Journal of Risk and Insurance for nine years and in this capacity also became familiar with multiple aspects of insurance, including institutional details, market performance, agent behavior and responsibilities, and standard practice in the insurance industry.

Dr. Brockett has published four books or monographs and over 130 scientific research papers. He regularly teaches classes involving insurance and risk management. He received his PhD in mathematics in 1975 from the University of California at Irvine, California.

Yehuda Kahane is active in both the academic and business areas. He is a professor of insurance and finance, Faculty of Management, Tel Aviv University, and head of the Akirov Institute for Business and the Environment. He founded and served as the dean of the first academic school of insurance in Israel (now a part of Netanya Academic College). At Tel Aviv University he directed the Erhard Insurance Center and the actuarial studies program and coordinated the executive development program. He is a life and nonlife actuary.

Over more than forty years, Dr. Kahane has taught at universities around the globe, including the Wharton School at the University of Pennsylvania, the University of Texas at Austin, the Hebrew University of Jerusalem, the University of Florida, and the University of Toronto, among others. He founded and has directed the Israel CLU program. He has also organized and lectured in hundreds of seminars and conferences.

Dr. Kahane earned a BA in economics and statistics in 1965, an MA in business administration, cum laude, in 1967, and a PhD in finance in 1973, all from the Hebrew University of Jerusalem. He has served as an associate editor of the leading journals on risk and insurance. He has taught courses in technological forecasting (the first teacher of this subject in Israel), finance, insurance, risk management, and actuarial topics. His research focus is on the portfolio implications for insurance, rate making, automobile insurance, natural hazards, pension and life insurance, reserving, and environmental risks.