When you have finished this chapter, you should be able to
- Identify two decision models from the field of decision theory that may be used in risk management decision making and explain the circumstances in which each is applicable
- Identify the three rules of risk management and explain how they relate to the management science decision models
- Identify the common errors in buying insurance and explain how these errors can be avoided
- Select the appropriate technique for dealing with a particular risk, based on the characteristics of the risk
- Identify the factors that should be considered in the selection of an insurance agent and an insurance company
- Explain the advantages and disadvantages of self-insurance
- Describe the general nature of captive insurance companies
Now that we have examined the concepts of risk, risk management, and insurance, we turn to a discussion of risk management applications and the ways in which risk management concepts can be applied in managing risks. We begin with a discussion of the considerations in selecting the technique that will be used to address the various risks facing the individual or organization. Next, we will discuss the ways in which these considerations influence insurance-buying decisions. Finally, we will examine some of the alternatives to commercial insurance.
RISK MANAGEMENT DECISIONS
Once the risks have been ...