Preface

This second edition of Risk Management for Enterprises and Individuals is designed to provide understanding of the field of risk and insurance. It uses the dynamic nature of the field as an introduction to undergraduate and graduate students. The co-authors are experts in the field of risk management and insurance and their combined teaching spans more than 110 years. Drs. Etti Baranoff, Patrick L. Brockett, Yehuda Kahane, and Dalit Baranoff have brought the newest cutting-edge ideas to this edition with the advent of the disruptive power of InsurTech and cyber risks. The issues of sustainability and thrivability are included as an important objective in risk management, and as societal and environmental risks recognized by many companies today. In addition, the coverage of the use of capital markets to hedge risks is more thorough in this edition, to ensure solutions are available from many sources. With the addition of many new areas in risk and insurance, this textbook includes six main groupings of chapters.

Chapters Group 1 (Chapters 1–5)—Risk defined, measured, and managed, including innovations, sustainability, and use of capital markets

This new edition presents in-depth studies of InsurTech, technological innovations, and societal and environmental risk issues, along with the use of capital markets to hedge risks. The foundations of the first edition are preserved and new, timely topics are integrated to add value. A significant amount of the text is refreshed to apply to today’s state of risk management. These chapters were rewritten while integrating new explanations of Value at Risk in Chapter 2, sustainability in risk management, and the highly-praised new section on InsurTech in Chapter 4. Chapter 5 includes thorough clarification about derivatives and securitization, which benefits from the lead author teaching a Managing Financial Risk course as well as her work at the Geneva Association on financial stability issues, post the 2008 financial crisis. A major change is the expansion of risk management into three chapters (3-5), in lieu of the removal of the prior Risk Attitudes chapter.

Chapters Group 2 (Chapters 6–8)—The Insurance solution, operations, underwriting cycles and regulation

Chapter 6 begins with the study of the insurance solution and the law of large numbers, insurable risks, and the viability and importance of insurance. The insurance theme continues in Chapter 7 with insurance operations (a move from function to function), and Chapter 8 with insurance underwriting cycles in the property/casualty market, as well as an explanation of insurance regulations in the U.S. The chapters are refreshed and reflect the changes of the last decade, including the ability to create “pooling” using new technologies and the costly catastrophes of 2017.

Chapters Group 3 (Chapters 9–12)—Fundamental doctrines of insurance contracts, structure and analysis of insurance contracts and overview of property risk including cyber risk and global risks, and liability exposures

This grouping is an entry into the legal field of insurance. The nature of the risk transfer is virtual; the contracts, however, are concrete and attempt to be as explicit as possible. Chapter 9 is the beginning of the study of contracts in general and Chapter 10 is about the structure of insurance policies. Chapter 11 covers property risks, with new sections on cyber and global risks, while Chapter 12 discusses liability risks. The cyber risk section is a new study of this major risk, which is high in frequency and severity. Global risks coverage includes material from the World Economic Forum 2018 Global Risks Report.

Chapters Group 4 (Chapters 13–15)—Multirisk management contracts: I. Homeowner’s, II. automobile, and III. commercial packages

The personal lines of homeowners and automobile insurance are covered in detail in Chapters 13 and 14 (actual homeowner’s and auto policies from Verisk [ISO] included in Appendices A and B), and Chapter 15 (commercial insurance policies included as attachments). Several of the authors teach these chapters hands-on, covering actual “all risks” policies with exclusions. The students read the policies to be able to respond to loss scenario questions. The objective is to learn the structure and nature of insurance contracts as they are used in the marketplace.

Chapters Group 5 (Chapters 16 and 18)—Social insurance in the U.S.

The social insurance group of Chapters includes chapters 16 and 18.  We position workers’ compensation and unemployment compensation together with property/casualty coverage in Chapter 16. Chapter 17 is presented as a primer on life cycle risks and includes population pyramids. These pyramids explain the idea of “pay-as-you-go,” which is the foundation of Social Security and Medicare in the U.S. (Chapter 18). It is recommended that students see these pyramids at the introduction of class and emphasize the perils associated with longevity risks.

Chapters Group 6 (Chapters 17, 19–22)—Life cycle risks; Life, health, and pensions for mortality, longevity, and health risk for individuals and groups (employee benefits)

General life cycle risks are covered in Chapter 17 while Chapter 19 is an expedition into all types of life insurance policies, as well as the policies themselves. Group life insurance concludes Chapter 19. Chapter 20 covers the general area of employee benefits, including applicable laws, underwriting, and funding methods. Chapter 21 discusses pensions and annuities in the U.S., while Chapter 22 explains the Affordable Care Act (ACA) of 2010 and its ramifications, processes, health insurance plans (both individual and employer-provided) and the potential unravelling of the ACA. The end of Chapter 22 provides accident and health risk solutions with disability insurance for individuals and groups.

Hypothetical Cases—Chapter 23, and 17, 18–22

Chapter 23 is updated in this second edition. It provides up-to-date hypothetical case studies for students. The opening case is about two friends who died tragically on September 11. It is designed to present the full picture of benefits from all sources (government, employers, and individuals). The first additional case, the Smith Family Risk Management Portfolio is designed for Risk Management students and it covers application of the material taught during the entire course. It is a step-by-step development of the case as the material is covered in class. For example, when Chapter 13 is taught, groups 1 and 2 present their families along with their financial statements. They show three homeowners’ insurance quotes, with explanations of the coverage and loss examples. When chapter 14 is covered, groups 3 and 4 show the work for their families, including quotes and loss scenarios for automobile insurance. The application of the material taught throughout the semester is part of the pedagogical tools of this text. All the groups work on the applications simultaneously in order to be able to complete the project by the end of the semester and be better prepared for exams. The last presentations usually cover health insurance, disability, and pensions for the hypothetical families. The students are asked to create the insurance and pension budgets, as well as risk maps for the families, as demonstrated in the updated Chapter 23.

Chapters 17 and 19–22 include the material covered by the Galaxy Max employee benefits handbook case. The process of incorporating the case into the material as we go along is very similar to that of the Smith Family case. When group life is covered in class (Chapter 19), groups 1 and 2 present their hypothetical companies, demographics, and employer’s group life comprehensive package with loss examples. When group disability is covered, groups 3 and 4 present their work for their hypothetical companies with loss scenarios. The rest of the groups complete this section in their project simultaneously. We use hypothetical companies in order to provide all pension plans, as well as most other benefits as learning tools. At the conclusion, students are asked to compare their benefits package to a real-life similar company (in this case, Galaxy Max could be compared to Dell Computer). The written project can be part of the final.

In summary, the new edition of this textbook enjoys the enhancements of the pedagogical excellence of FlatWorld. The platform allows us to include links, attachments, and complete online accessibility.