Principles of Risk Management and Insurance
Peking University HSBC Business School
Department of Finance
Spring 2011-Module 1
Principles of Risk Management and Insurance
(M/R13:30-15:20 C125)
Professor: Lan Ju Office: C-401
Phone: 86-755-26032653 Email: julan@pkusz.edu.cn
Office Hours: By appointment
TA: Tao Wang chinachris.wang@gmail.com
Text:
Scott E. Harrington and Gregory R. Niehaus, Risk Management and Insurance, 2nd edition, 2003, McGraw-Hill Companies, NY.
Recommended Readings:
Business Insurance: www.businessinsurance.com
Insurance Information Institute: www.iii.org
Other Course Materials:
Lecture notes, extra readings and exercises are to be posted on the website of “China Finance Practitioner”
Students should check this site on a regular basis for updates.
Course Objective:
Today’s business managers must operate in an increasingly complex, global environment that generates many risks which are often associated with property losses, legal liability, workplace injury and employee benefits, currency exchange, interest rate fluctuations and political risks. These risks can threaten not only operational goals such as profitability and growth, but also the organization’s very survival.
This course explores the areas of general risk management process, property and liability insurance, life and health insurance, annuities and employee benefits in the states. We will learn to identify and measure risks, and select appropriate risk management tools to reduce and finance risks. The purpose of the course is to equip students to develop a conceptual framework for making risk management decisions that increase business value and individual welfare and get familiar with the insurance industry.
Grading Policy:
We will have 2 quizzes, 3 assignments, 1 presentation and 1 final exam. The determination of your final grade is as follows:
| Quizzes | 10% |
| Homework | 15% |
| Presentation* | 20% |
| Final Exam | 55% |
| 100% |
*: The presentation is going to be based upon one of the research papers distributed in the class.
Class Participation:
We learn by actively participating in the learning process. Please note that quizzes will be given without prior notice. Thus, you are strongly encouraged to read course materials before coming to the class. Also, please remember your active participation in the class discussion may affect your grades at the margin.
Academic Honesty:
Academic dishonesty discourages learning. Therefore all students are expected to abide by the code of academic honesty of PHBS, and to interact with one another respectfully, fairly, and honestly. Known instances of academic dishonesty will be prosecuted through the University’s judiciary system.
Tentative Schedule:
|
Week
|
Lecture |
Topic
|
Readings (Ch.)
|
| Overview of Risk and Risk Management | |||
|
1
|
1(M)
|
Introduction to Risk and Risk Management(RM) | 1 |
|
2(M)
|
Objective of RM | 2 | |
| Corporate RM-Pure Risk Exposures | |||
|
1
|
3(R)
|
Risk Identification | 3.1, HW 1 |
|
4(R)
|
Property Exposures | 3.1 | |
|
2
|
5(M)
|
Liability RM problems (I) | 12.1-12.2 |
|
6(M)
|
Liability RM problems (II) | 12.3 | |
|
7(R)
|
Liability RM problems (III) |
12.4, 12A,HW 1 due
(3/3/2011)
|
|
|
8(R)
|
Human Resource Exposure (I) | 18 | |
|
3
|
9(M)
|
Human Resource Exposure (II) | 16.1-16.2, 17.1-17.2 |
| Pure Risk Measurement and RM Tools | |||
|
3
|
10(M)
|
Risk Measurement (I) | 3.2, HW 2 |
|
11(R)
|
Risk Measurement (II) | 3.3, 4.1-4.2 | |
|
12(R)
|
RM Tools I-Loss Control | 11.1-11.3 | |
|
4
|
13(M)
|
RM Tools II-Retention and Non-insurance Transfer | 22.1,29.3 |
|
14(M)
|
RM Tools III-Insurance Transfer | 4.1-4.3, HW 2 due(3/14/2011) | |
|
(R)
|
Presentation | (3/17/2011) | |
|
(R)
|
|
||
| Pure RM Decision Making | |||
|
5
|
15(M)
|
RM and Shareholder Wealth |
20 |
|
16(M)
|
Cash Flow Analysis | 11.3 | |
|
17(R)
|
Captives | 11.3 | |
|
18(R)
|
Selection and Monitoring | 22 | |
|
6
|
19(W)
|
Case Study | |
|
20(W)
|
Financial Price RM-Hedging | 24 | |
|
21(R)
|
Case Study-Enterprise Risk Management | 27 | |
|
22(R)
|
Insurance Pricing | 8.1-8.5, HW 3 | |
| General Theory of Insurance | |||
|
7
Qing
Ming
Break
(MàW)
|
23(W)
|
Insurability of Risk | 10.1 |
|
24(W)
|
Contractual Provisions and Legal Doctrines(I) | 10.2-10.3 | |
|
25(R)
|
Contractual Provisions and Legal Doctrines(II) | ||
|
26(R)
|
Auto Insurance | 13 | |
|
8
|
27(M)
|
Life & Health Insurance (I) | 15, 16.3-16.6, HW 3 due (4/11/2011) |
|
28(M)
|
Life & Health Insurance (II) | ||
|
29(R)
|
Social Insurance | 19 | |
|
30(R)
|
Insurance Regulation | 19 | |
|
9
|
(M)
|
Special topics (TBD)* | |
|
(M)
|
|||
|
(R)
|
Presentation
|
4/21/2011 | |
|
(R)
|
|||
Special topics (TBD)*: Guest Speakers will be invited from time to time. Other time slots will be modified accordingly.
Final Exam: TBD ---4/23 or 4/24/2011
Presentation—List of Papers
Corporate Risk Management
1. Froot, Kenneth A., Sharfstein, David S., and Stein, Jeremy C., 1993, “Risk Management: Coordinating Corporate Investment and Financing Policies, “ Journal of Finance, Vol. XLVIII, pp. 1629-1658.
2. Zou, Hong, Adams, Mike B., and Buckle Mike J., 2003, “Corporate Risks and Property Insurance: Evidence from the Peoples Republic of China,” Journal of Risk and Insurance, Vol.70, pp. 289-314.
Cat Financing
3. D’Arcy, Steve, and France Virginia Grace, 1992, “Catastrophe Futures: A Better Hedge for Insurers,” Journal of Risk and Insurance, pp. 575-601.
Insurance Demand
4. Rothschild, Michael and Stiglitz, Joseph, 1976, “Equilibrium in Competitive Insurance Markets: An Essay on the Economics of Imperfect Information,” The Quarterly Journal of Economics, Vol. 90, No. 4, pp. 629-649.
Insurance Underwriting Cycle
5. Harrington, Scott E., Danzon, Patricia M., and Epstein, Andrew J., 2008, “Crises in Medical Malpractice Insurance: Evidence of Excessive Price-Cutting in the Preceding Soft Market,” Journal of Banking and Finance, Vol.32, pp. 157-169.
Insurance Regulation
6. Mayers, David, and Smith, Clifford, 1994, “Managerial Discretion, Regulation and Stock Ownership Structure,”Journal of Risk and Insurance, Vol.61, pp. 638-655.
Auto Insurance
7. Schmit, Joan T., and Yeh, Jia-Hsing, 2003, “An Economic Analysis of Auto Compensation Systems: Choice Experience from New Jersey and Pennsylvania,” Journal of Risk and Insurance, Vol. 79, pp.601-628.
Insurance Fraud
8. Crocker, Keith J., and Tennyson, Sharon, 2002, “Insurance Fraud and Optimal Claims Settlement Strategies”,Journal of Law and Economics, Vol.45, pp. 469-507.