Insurance and Social Security

Transcription

1 Insurance and Social Security Dr. Szilveszter FARKAS PhD, associate professor BBS, FFA, Departement of Finance Office: B 109, Office Hours: Monday, 13:00-14:30 The main subjects of the course and schedule 1. Theory of risk and insurance 2. Insurance market in Hungary 3. Social security in Hungary 2 1

2 Requirements and assessment Learning course materials 2 mid-term written exam, points [sample tests (on my website)] Individual presentation (10 minutes) or homework paper (6-8 pages), 20 points 0-60points fail(1), 61-69points pass(2), satisfactory (3), good(4), points excellent (5) 3 About readings Selected parts of Rejda s book, 9 chapters Reajda, G. E. (2008): Principles of Risk Management and Insurance learning objectives, text, review questions, application questions, internet resources (only US), selected references and notes Hungarian insurance act, MABISZ Yearbook 2013 and reading about Hungarian social security download from my website 4 2

3 1. Theory of risk and insurance Risk in our society (Ch. 1) Insurance and risk (Ch. 2) Types on insurers and marketing systems (Ch. 5) Insurance company oprations (Ch. 6) Life and health insurance (Ch. 11, 15 and 16) Personal property insurance (Ch. 20, 22) 5 2. Insurance market in Hungary Act LX of 2003 on Insurance Institutions and the Insurance Business general overview of the market system MABISZ Yearbook 2013 insurance industry , economic situation, campanies market share in 2012, life and non-life insurance 6 3

4 3. Social Security in Hungary Pension insurance Health insurance Social Security Hungary. Euroguidance, Lecture 1 Risk in Our Society 4

5 Agenda Meaning of Risk Chance of Loss Peril and Hazard Basic Categories of Risk Types of Pure Risks Burden of Risk on Society Methods of Handling Risk Meaning of Risk Risk: Uncertainty concerning the occurrence of a loss Loss Exposure: Any situation or circumstance in which a loss is possible, regardless of whether a loss occurs. Objective Risk vs. Subjective Risk Objective riskis defined as the relative variation of actual loss from expected loss Subjective riskis defined as uncertainty based on a person s mental condition or state of mind 5

6 Chance of Loss Chance of loss: the probability that an event will occur Objective Probability vs. Subjective Probability Objective probabilityrefers to the long-run relative frequency of an event assuming an infinite number of observations and no change in the underlying conditions Subjective probabilityis the individual s personal estimate of the chance of loss Peril and Hazard A perilis defined as the cause of the loss A hazardis a condition that creates orincreases the chance of loss Physical hazard Moral hazard Morale Hazard Legal Hazard 6

7 Classification of Risk Pure and Speculative Risk A pure riskis one in which there are only the possibilities of loss or no loss (earthquake) A speculative riskis one in which both profit or loss are possible (gambling, purchase shares) Fundamental Risk and Particular Risk Fundamental riskis arisk that affects the entire economy of large numbers pf persons or groups within the economy (e.g. natural disaster, terrorist attack) Particular riskis a risk that affects only individuals and not the entire community (e.g. car thefts, bank robberies) Enterprise Risk is a term that encompasses all major risks faced by business firm (e.g. pure and speculative risks, operational risk, financial risk) Classification of Risk Enterprise Risk Management combines into a single unified treatment program all major risks faced by the firm: Pure risk Speculative risk Strategic risk Operational risk Financial risk 7

8 Types of Pure Risk(1) Personal risksinvolve the possibility of a loss or reduction in income, extra expenses or depletion of financial assets: Premature death of family head Insufficient income during retirement(see next slide) Poor health (catastrophic medical bills and loss of earned income) Involuntary unemployment Types of Pure Risk(2) Property risksinvolve the possibility of losses associated with the destruction or theft of property: Physical damage to home and personal property from fire, tornado, vandalism, or other causes Direct loss vs. indirect loss A direct lossis a financial loss that results from the physical damage, destruction, or theft of the property, such as fire damage to a home An indirect lossresults indirectly from the occurrence of a direct physical damage or theft loss, such as the additional living expenses after a fire to a home. These additional expenses would be a consequential loss. 8

9 Types of Pure Risk(3) Liability risksinvolve the possibility of being held liable if everyone do something for bodily injury or property damage to someone else There is no maximum upper limit with respect to the amount of the loss A lien can be placed on your income and financial assets Legal defense costs can be enormous Commercial Risks Commercial Risks: firms face a variety of pure risks that can have serious financial consequences if a loss occurs Property risks, such as damage to buildings, furniture and office equipment Liability risks, such as suits for defective products, pollution of the environment, and sexual harassment Loss of business income, when the firm must shut down for some time after a physical damage loss Other risks to firms include crime exposures, human resource exposures, foreign loss exposures, intangible property exposures, and government exposures 9

10 Burden of Risk on Society The presence of risk results in three major burdens on society: in the absence of insurance, individuals would have to maintain large emergency funds the risk of a liability lawsuit may discourage innovation, depriving society of certain goods and services risk causes worry and fear Methods of Handling Risk There are five major methods for managing risk Avoidance Loss control Retention Noninsurance transfers Insurance 10

11 Questions? 11