Risk Management and fraud in retail
practice
Concept of Risk Management
• Introduction to risk
• Nature of risk
• Types of risk
• Risk management
• Risk evaluation
• Defining of Risk
• Uncertainity & Certainity
• Measurement risk
• Severity and frequency
Nature of Risk
• Fundamental and particular risk
• Personal risk
• Property risk
• Liability risk
• Risk due to ownership and use of transport vehicle
Personal risk
• Premature death
• Dependent old age
• Sickness or disability (resulting in loss of income and earning power
involving additional expenses and extra needs)
• Unemployment (loss of income may be permanent/temporary
Property risk
• Loss/damage of property
• Loss of use of property
• Additional expense may lead to loss of property
Liability risk
• They arise out of human mistakes often termed as civil wrong by a
person resulting in injury or death
Management of risk
• Definition :- It is concerned with direct purposeful activity towards
achievements of individual or organization goals
Or
It may be defined as identification analysis & economic control of
those risk which can threaten the asset or earning capacity of an
enterprises
Risk identification
various method for risk identification are :• Preparing the checklist of risk or various losses which may arise due
to risk
• Financial statement analysis
• Flowchart preparation and identification of risk activities
• Statistical records of occurrence of loss related to various categories
of risk
Methods for Handling risk
• Prevention/avoidance of risk
• Reduction of risk
• Shifting or transferring of risk
• Accepting/resuming risk
• Spreading risk
Basic characteristic of insurance
Risk pooling
• Risk transfer from individual to a pool of the insurance company
policy holder
• The company charge premium for accepting risk
Law of large number
Larger the pool more predictable the amount of losses in a given
period
Advantage and disadvantage of insurance handling
risk
Advantages :Indemnification
Rupee benefit period or service
rendered to insurance who
suffer cover loss
Reduction of uncertainty
Permit lengthening planning
allow the firm to accept more
uncertainties in other areas
• Disadvantages :• Less incentive for loss control
insurance expected estimate
will arise causing premium to
rise
• Exaggeration or false reporting
of insured claim
• Subsequently premium may rise
or there may be difficulty
retaining insurance coverage