Introduction to Risk Management and Insurance / Edition 9 available in Hardcover
Expanded coverage of current topics now includes:
- The Financial Services Modernization Act of 1999, known as the Gramm-Leach-Bliley Act.
- Financial risk management techniques being used as substitutes for commercial insurance.
- The problems facing the US. social security system.
- The continuing difficulties facing the U.S. health care delivery program, including coverage of the Healthcare Bill of Rights and Patient Rights.
- The potential for private insurance in Eastern Europe.
- The impact and implications of the Internet.
Table of Contents1. Fundamentals and Terminology.
2. Defining the Insurable Event.
3. Risk Management.
4. Financial Services Companies.
5. Insurance Occupations.
6. The Insurance Market: The Economic Problem.
7. Insurance Regulation.
8. Insurance Contracts.
9. Basic Property and Liability Insurance Contracts.
10. Homeowners Insurance.
11. The Personal Auto Policy.
12. Professional Financial Planning.
13. Life Insurance Policies.
15. Medical Expense and Disability Insurance.
16. Standard Life Insurance Contract Provisions and Options.
17. Advanced Topics in Risk Management.
18. Commercial Property Insurance.
19. General Liability Insurance.
20. Special Liability Insurance.
21. Bonding, Crime Insurance, and Reinsurance.
22. Employee Benefits.
23. Social Security.
24. Unemployment and Workers' Compensation Insurance.
The seventh edition of this book is written for students who want to learn about professional financial planning, risk management, and insurance. This text also is written for instructors who, like the author, enjoy the challenge and rewards of classroom interaction with students. As a reader would expect in an introductory textbook, presenting essential terminology and key insurance and risk management concepts are critically important goals. The manuscript has benefited from decades of exchanging ideas with students, colleagues all over the world, and risk management and insurance professionals. The best of these exchanges ended with "Now I understand."
To further our goals, the seventh edition includes discussions of current issues such as the following:
- The financial services reform act known as the Gramm-Leach-Bliley Act (The Financial Services Modernization Act of 1999). This act allows banks, insurance companies and security dealers to form holding companies and has great potential for changing the insurance industry.
- The financial risk management techniques being used as substitutes for commercial insurance.
- The problems facing the U.S. social security system.
- The continuing problems facing the U.S. health care delivery system.
- The potential for private insurance in Eastern Europe.
This book contains several features to help readers focus on main ideas. Chapters begin with learning objectives. Each chapter includes a Review section providing the reader with a self-test of the material covered in the chapter. Objective Questions in a multiple-choiceformat are new to this edition. The Objective Questions give students a second opportunity to determine if they have mastered the material covered in the chapter and to prepare themselves for examinations. Answers to the Objective Questions appear in Appendix D at the end of the book. Each chapter also contains Discussion Questions and Research Assignments that are appropriate for advanced undergraduate or MBA-level courses. The Discussion Questions often are open-ended and allow critical thinking and the examination of values. The Research Assignments are a response to some instructors who requested report-writing activities. The Suggestions for Further Study section has been eliminated in this edition because most readers now have access to online computer literature searches.
Boldfaced words appear throughout the text and in the margins. Boldface type alerts readers to important vocabulary. Many students also report working with the Glossary, which provides brief definitions of most of the terms appearing in boldface throughout the text. Shaded boxes have been used throughout the text to alert the reader to important material such as direct quotation of insurance policy language, judicial decisions, and quotations from other authors.
WHY STUDY RISK MANAGEMENT AND INSURANCE?
Students are motivated to complete an introductory risk management and insurance course for a variety of reasons. Some students will pursue a risk management and insurance career; some will pursue a career in other management areas. Some students will take advanced risk management and insurance courses, while all readers are likely to purchase personal lines of insurance.
The Consumers' Viewpoint
On occasion I have asked my students why they elected to study risk management and insurance. Typical answers have been: "I know I'm going to buy insurance someday, so I thought I'd learn about it." "My friend told me to take the course because she liked it." "I'm planning on going into the insurance business, so I thought I'd learn about it in school." "I'm a business major, and I think all businesspeople should know about risk management." "My roommate was in an accident and didn't have the right insurance coverage." These are all good reasons for studying this book. After taking an introductory risk management and insurance course, a student should have an understanding of how insurance helps to solve some personal financial problems. One purpose of this book is to introduce some basic insurance concepts from the consumer's viewpointboth individual and corporate consumersand to advocate intelligent, informed purchases of insurance.
The Academic Viewpoint
The study of insurance can play a significant role in achieving the general goals of a broad-based undergraduate education. The author believes the study of insurance is a way to accomplish the following goals:
- To encourage critical thinking, including moral and ethical reasoning.
- To facilitate the ability to use language effectively.
- To aid understanding human behavior.
- To provide understanding of the causes and effects of important societal problems.
- To integrate knowledge across broad areas including mathematics, social science, philosophy, law, natural science, and economics.
- To integrate knowledge across the business curriculum including marketing, finance, accounting, management, and management information systems.
Critical Thinking and Moral Reasoning
It would be difficult to teach insurance courses without discussing logical alternative choices with students. The text provides discussion of the following questions: What distinguishes socially acceptable from unacceptable characteristics in setting insurance rates? Could a capitalistic society function without a private insurance system? Should health insurance be provided on a public or private basis? Who should decide what type of treatments should be reimbursed under health insurance coverage? Should the insurance transaction be regulated at the federal or at the state level? How should an insurance agent act when a conflict of interest arises With a client? These questions require critical thinking and logical analysis.
Effective Use of Language
Other than a "business English" course, perhaps no course offered in U.S. business schools allows more attention to the English language than the introductory risk management and insurance course. The study of insurance policies is a study of English in action. Much of the education that occurs involves learning that words may mean different things to different people; that courts are often needed to interpret language when it is not used precisely; and that using ambiguous language can be very expensive. Compensation for loss often depends on definitions of perils such as explosion, collapse, and earth movement. Discussion of legal cases throughout this book should leave the impression on readers that language must be used precisely to avoid unintended results. According to many curricular experts, understanding the importance of communicating effectively is one of the greatest lessons learned at the undergraduate level.
Understanding Human Behavior
Human behavior is a relevant topic in every insurance course because the insurance transaction at the individual and the business level is the result of human interaction. Many risk management questions have psychological explanations including the following: Why are some exposures to loss insured while others are not? What role does human behavior play in causing or preventing losses? How can society encourage people to save and insure their lives adequately?
Congress and state legislatures discuss insurance issues regularly, and several insurance issues have already appeared on ballots. Among the important societal questions raised in this text are the following: How should health care costs be distributed? How should we prepare for an aging society, including the financing of long-term care and providing adequate retirement income? How should the cost of repairing our damaged environment be borne? None of these problems can be addressed adequately without discussing insurance.
Insurance is, and historically has been, one of society's most effective tools for handling some of its most difficult problems. Thus, the study of insurance will remain important as long as the problems it solves remain important.
Integration Across the Curriculum
Risk management and insurance concepts cannot be taught effectively without reference to economics, mathematics, and law. Concern with potential losses, the focal point of the undergraduate risk management curriculum, is shared to some extent by all major divisions of business studies. Instruction in risk management and insurance often includes references to history, politics, architecture, engineering, medicine, psychology, and gerontology.
One purpose of this book is to provide readers with the vocabulary and information that will allow them to understand some important societal questions and form their own conclusions. Another purpose is to provide background needed to understand the types of problems arising from the individual's or business firm's exposure to loss, and how these problems may be approached and solved. Many speeches have been given and many articles have been written about insurance topics. The most recent presidential campaign focused on two insurance issues, health care and the future of social security. Perhaps if speakers and editorial writers knew that their audiences understood the questions, self-serving arguments would give way to more direct and honest discussion. Because insurance questions tend to be complex, many listeners have been kept in the dark. It is the author's hope that studying this text will let in some light.
Perhaps the change that will be most noticed by instructors is a reordering of the chapters. The chapters describing personal insurance lines are presented first, while the chapters covering commercial insurance transactions are presented afterwards. The chapters covering life insurance have been placed in the context of professional financial planning to reflect changes occurring in practice. These changes allow instructors wanting the first risk management and insurance course to emphasize consumer and personal insurance to cover these subjects earlier in their course. Also, personal insurance generally is less complex than commercial insurance and the current arrangement of chapters allows the reader to move from fundamental vocabulary and principles to more complex topics.
The American Assembly of Collegiate Schools of Business has identified international business, business ethics, and computer literacy as special areas to be interwoven in business courses. This book addresses each of these topics as they are directly related to the risk management process.
PLAN OF THE BOOK
This book is divided into six sections and twenty-four chapters.
- Part 1 (Chapters 1 to 3) covers basic principles and terminology.
- Part 2 (Chapters 4 to 7) presents operational and regulatory background for the insurance industry.
- Part 3 (Chapters 8 to 11) explains the personal insurance policies most likely to be purchased by readers-the homeowners and the personal automobile policy.
- Part 4 (Chapters 12 to 16) presents professional financial planning, including life and health insurance topics.
- Part 5 (Chapters 17 to 21) describes advanced risk management topics and commercial property and liability insurance.
- Part 6 (Chapters 22 to 24) covers employee benefits, social security, unemployment insurance, and workers' compensation.