1. What is Risk..?
ü Uncertainty concept = risk traditionally has been defined uncertainty
ü Objective Risk
Ø Defined as the relative variation of actual loss from expected loss
Ø Declines as the number of exposure unites increases
Ø Is measurable by using the standard deviation or coefficient of variation
ü Subjective Risk
Ø Defined as uncertainty based on one’s mental condition or state of mind
Ø Difficult to measure
2. Chance of loss
ü Objective Probability
Ø A priori – by logical deduction such as in games of chance
Ø Empirically – by induction, through analysis of data
ü Subjective Probability
Ø A personal estimate of the chance of loss. It need not coincide with objective probability and is influenced by a variety of factors including age, sex, intelligence, education and personality.
ü Change of loss distinguished from risk
Ø Although chance of loss may be the same for two groups, the relative variation of actual loss from expected loss may be quite different.
3. Methods of handling risk
ü Loss control
ü Noninsurance transfer