You have been appointed as a claims underwriter responsible for settlement of losses with clients. Below are details of events that you require to make a decision. Assume that both vehicles are insured by your insurance company. A passenger bus was travelling from point A to Point B when it collided with a parked saloon vehicle. The accident occurred on a road that is not authorized as a passenger route. The bus swerved to avoid hitting into a wall fence but ended up destroying part of a fence of a neighbor to the owner of a parked car.The car was parked partly on the gravel road. The car will definitely require panel beating. Four kids that live at the house whose fence was partly destroyed had strayed into the road while playing football causing the driver to swerve and hit into the car. The bus owner does not accept any responsibility what so ever claiming that he did not expect the bus to operate on that as it was taken to the garage for service. All passengers escape unhurt but two passengers suffered a trauma and require hospitalization. An old woman who was resting behind the fallen fence suffered a broken leg. The neighbors are bickering over the consequences of the collision. 1. Describe what is meant by risk, peril, hazard, distinguishing clearly between the following types of hazards; a. Morale hazard b. Moral hazard c. Attitudinal hazard 2. Outline the risk framework you will use to analyze the risk events. 3. From the above scenario, Give examples of direct loss, indirect loss and liability risk 4. Identify the victims, losses, hazards and perils in this case. 5. Identify remedies availabile, identifying people who can claim and state clearly the party responsible for settlement of the claim directly and indirectly 6. Give reasons to justify your assertions above
You have been appointed as a claims underwriter responsible for settlement of losses with clients. Below are details of events that you require to make a decision. Assume that both vehicles are insured by your insurance company. A passenger bus was travelling from point A to Point B when it collided with a parked saloon vehicle. The accident occurred on a road that is not authorized as a passenger route. The bus swerved to avoid hitting into a wall fence but ended up destroying part of a fence of a neighbor to the owner of a parked car.The car was parked partly on the gravel road. The car will definitely require panel beating. Four kids that live at the house whose fence was partly destroyed had strayed into the road while playing football causing the driver to swerve and hit into the car. The bus owner does not accept any responsibility what so ever claiming that he did not expect the bus to operate on that as it was taken to the garage for service. All passengers escape unhurt but two passengers suffered a trauma and require hospitalization. An old woman who was resting behind the fallen fence suffered a broken leg. The neighbors are bickering over the consequences of the collision.
1. Describe what is meant by risk, peril, hazard, distinguishing clearly between the following types of hazards;
a. Morale hazard
b. Moral hazard
c. Attitudinal hazard
2. Outline the risk framework you will use to analyze the risk events.
3. From the above scenario, Give examples of direct loss, indirect loss and liability risk
4. Identify the victims, losses, hazards and perils in this case.
5. Identify remedies availabile, identifying people who can claim and state clearly the party responsible for settlement of the claim directly and indirectly
6. Give reasons to justify your assertions above
Ans 1. Risk
Risk denotes future uncertainty regarding divergence from projected profits or outcome. Risk quantifies the level of risk that an entrepreneur is willing to accept in order to profit from an investment.
Peril
A peril is an incident, such as a fire or a break-in, that may cause harm to your house or possessions.
Hazard
A hazard is anything, circumstance, or action that has the possibility of causing harm, illness, or property or environmental damage.
Every job has health and safety risks. Some are readily discovered and addressed, whilst others are job-related hazards that must be addressed in those other ways (for instance, by using safety probe).
The types of hazards are as follows:
a) Morale hazard
Morale hazard is a phrase used in insurance to characterise an insured person's attitude toward their belongings. Because the goods are covered, it reflects an increase in indifference to loss. Assume a person purchases insurance for their new phone.
Morale hazard occurs when their phone model gets obsolete and they no longer care about it. They don't mind if their phone gets destroyed because their insurance will cover the cost of a new one. Their apathy for their phone results in unintentionally altered conduct.
Indifference to unintentional danger is referred to as moral hazard.
Morale hazard refers to an unnoticed shift in a person's conduct while he is insured.
b) Moral hazard
Moral hazard refers to behavioural modifications that may raise the risk of loss since the actor will not be held accountable if anything goes wrong. The word is used in the insurance sector to describe the probability that, after acquiring coverage, a person may act in a dangerous manner for personal benefit because the insurance provider will have to cover any losses. Moral hazard refers to the notion that insurance encourages risk-taking for personal benefit.
Moral hazard refers to a conscious shift in conduct in order to gain from an occurrence.
Moral hazard is defined as the willful pursuit of risk for self gain because the cost of defeat is not borne.
c) Attitudinal hazard
Attitudinal danger is Carelessness or apathy about a loss that increases the frequency or severity of a loss Morale hazard is another name for attitudinal hazard.
Attitudinal hazards, entail an insured's or applicant's negligence or indifference to prospective loss. These dangers are more subtle and consequently more difficult to identify than moral dangers. An policy holder mindset that "I don't have to be careful since I have insurance" is a particularly harmful attitudinal hazard.
Ans 2) Analysis of risk events
Follow these procedures to do a risk analysis:
- Identify Threats
Human - A crucial individual's illness, death, injury, or other loss.
Disruptions to supply and operations, loss of access to critical assets, or distribution failures are examples of operational disruptions.
Loss of consumer or staff confidence, or harm to market reputation.
Failures in accountability, internal processes, or controls, as well as fraud, are examples of procedural failures.
Project - Going over budget, taking too long on essential tasks, or having product or service quality difficulties.
Financial - Failure of a business, fluctuations in the stock market, changes in interest rates, or a lack of capital.
Technical - Technological advancements or failures.
Weather, natural catastrophes, or illness are examples of natural phenomena.
Changes in taxation, public opinion, government action, or foreign influence are examples of political changes.
Dangerous chemicals, bad lighting, collapsing boxes, or any condition where personnel, products, or technology might be damaged are examples of structural hazards.
To conduct a thorough analysis, you can employ a variety of methods, including:
· Examine a list like the one above to determine whether any of these dangers are relevant.
· Consider the systems, procedures, or structures you utilise and assess the hazards associated with any of them. What weaknesses do you notice in them?
· Inquire with others who may offer alternative viewpoints. If you're managing a team, solicit feedback from your team members and confer with others in your business or others who have managed comparable initiatives.
- Estimate Risk
Once you've identified the dangers, you must quantify the possibility of these threats being realised as well as their potential impact.
One method is to make your best assessment of the likelihood of the event occurring and then double that by the price it will cost you to rectify the situation if it occurs. This provides a monetary value for the risk:
Risk Value = Cost of Event x Probability of Event
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