Page 211 - RISK Management IC 86

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(b) Risk evaluation - Risk evaluation has two steps -
(i) the assessment of the probability of loss
occurring, and (ii) its severity.

It is not sufficient just to know that an organisation owns
or is responsible for the property that is exposed to
damage by fire, explosion, wind storm, flood, or any
other perils, or its products in that it produces or sells
which could cause injury or damage.

The formulation of sensible decisions about the way such
risks should be handled also requires information
regarding values at risk or potential liabilities, and the
estimated frequency of losses of different sizes,
including losses caused by interruption to business.

Only with such information is at hand, its possible to
judge the cost effectiveness of spending on risk reduction
or risk retention or risk insurance. In case of risk
insurance premium should be an acceptable price to pay
for the risk transfer. Risk evaluation is one of the most
difficult part of risk management process.

Q7. Write short notes on:
(a) Charging of losses to operating costs

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