The Lee Kong Chian School of Business Academic Year 2009 /10 Term 2

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1 The Lee Kong Chian School of Business Academic Year 2009 /10 Term 2 FNCE 215 RISK MANAGEMENT & INSURANCE Instructor : Tan Kin Lian Title : Adjunct Faculty of Finance Tel : kltan@smu.edu.sg ; kinlian@gmail.com Office : LKCSB Level 5 COURSE DESCRIPTION This course gives the student an understanding of risk and how it can be managed through various methods, including the use of insurance. It will cover the main types of insurance products to manage personal and business risks. The lectures will be presented in a practical manner, so that the student can understand how to make effective use of insurance in the future. There will be a business simulation game to teach the key concepts of running an insurance business in a competitive market environment. The games will introduce the concept of marketing, pricing and control of claims. There will also be two projects to allow the students to apply what they have learned and to work as a team. LEARNING OBJECTIVES By the end of this course, students will be able to: Explain the different types of risks and how they can be managed Analyze how insurance can be applied in different circumstances Evaluate the use of insurance to manage personal, property and liability risks Describe the career opportunities available in the insurance industry Apply the knowledge of insurance operations in a business simulation game PRE-REQUISITE/ CO-REQUISITE/ MUTUALLY EXCLUSIVE COURSE(S) Please refer to the Course Catalogue on OASIS for the most updated list of pre-requisites / co-requisites for this particular course. Do note that if this course has a co-requisite, it means that the course has to be taken together with another course. Dropping one course during BOSS bidding would result in both courses being dropped at the same time. ASSESSMENT METHODS Simulation game: 10% Projects: 20% Weekly quiz: 20% Class participation: 10% Final Examination: 40% % 1

2 COURSE METHODS A variety of instructional methods will be used, including lectures, class discussions, projects and simulation games. Detail of business simulation game is available on website: INSTRUCTION METHODS AND EXPECTATIONS Lectures will be given with the use of power points. The students are advised to read the relevant chapters in the text-book before the class and to have a quick revision after the class. The summary at the back of each chapter is useful to capture and remember the main points. There will be a quiz at the end of each of the first nine weeks. This is to be done at home. The student can refer to the text book to get the answers for the quiz. This practice and discipline will help to strengthen the understanding of the subject. The students will be grouped into teams of four students to carry out two projects outside of class. One project involves research through the internet of the innovative marketing practices adopted by leading insurance companies. The second project involves writing materials for the website of a new insurance company that intends to offer insurance products that are easily understood by the consumers, without the need for detailed explanation by an insurance agent. Students are encouraged to participate in the interactive class discussions. Some questions will be posed to the students to discuss in small groups for the answers. There will be a computer simulation game involving running an insurance company. The teams (i.e. group of four students) have to decide on the pricing, marketing and capacity for four insurance products over a simulated period of 4 to 8 virtual years. This gives an understanding of the practical issues facing insurance managers. The final examinations will cover selected chapters of the text book, focusing on the practical aspects, and will be a closed book examination. RECOMMENDED TEXT AND READINGS Authors Name: George E. Rejda Principles of Risk Management and Insurance Publisher, Year of Publication: Pearson, 2008 )10 th edition (Tel: ) Additional readings will be assigned. Students are expected to keep abreast of current developments globally by reading leading business dailies/weeklies like the Asian Wall Street Journal, Far Eastern Economic Review, The Economist, Business Times and Business Week. WEEKLY LESSON PLANS Week No. Topic Readings 1 Risk in our society Risk, loss, peril, hazard Categories of risk Burden of risk on society Methods of handling risk Insurance and risk PRMI Chapters 1 PRMI Chapter 2 2

3 Definition, characteristics Adverse selection Insurance, gambling, hedging Types of insurance Benefit and cost to society Risk Management Meaning, objectives Identify, analyse loss exposures Techniques to treat loss exposures Implement and monitor Benefits of risk management Advanced topics Changing scope Market dynamics Loss forecasting Financial analysis Type of insurers, marketing systems Private insurers Agents and brokers Marketing systems Group insurance marketing Insurance Company Operations Rate making, underwriting Production Claim settlement Reinsurance Investments Project 1 Innovative marketing systems (research through internet) Financial Operations Property and casualty insurers Life insurance companies Rate making Government regulation in insurance Purpose of regulation Methods of regulation Areas of regulation Fundamental Legal Principles Indemnity Insurable interest Subrogation Utmost good faith Insurance contracts Law on agency Analysis of Insurance Contracts Endorsement, riders Deductibles Coinsurance PRMI Chapter 3 PRMI Chapter 4 PRMI Chapter 5 PRMI Chapter 6 PRMI Chapter 7 PRMI Chapter 8 PMRI Chapter 9 PMRI Chapter 10 3

4 6 7 Life Insurance Amount of insurance Types of life insurance Dividends Non forfeiture Settlement Additional benefits Cost Rate of Return Annnuities Types of annuities Project 2 Sales and customer service through call center Individual Health Insurance Hospital, surgical Major medical Long term care Disability income Employee Benefits Group life Group medical expense Group dental Group disability income PRMI Chapter PRMI Chapter 14 PRMI Chapter 15 PRMI Chapter 16 8 Mid-term Break 9 10 Liability risk Legal liability Law on negligence Imputed negligence Tort liability Homeowner Insurance Coverage Perils insured against Exclusions Conditions Personal liability Endorsements Cost of insurance Auto Insurance Liability Medical payments Uninsured motorist Damage to own auto Insuring motorcycles PRMI Chapter 19 4

5 Commercial Property Building and personal property Cause of loss Business income Transportation Commercial Liability General liability Workers comeinsation Business owners Professional liability Directors and officers liability Key issues on insurance in Singapore discussion on CPF, Medisave, Medishield and insurance practice and law in Singapore Presentation of selected project reports by the teams Revision of materials in preparation for final examinations Business simulation game Break Final examinations by lecturer by lecturer 5