Benefits of implementing strategy: (1) Reduce liability loss exposure: the strategy reduces the hazard risk associated with being sued for the injury or death of a student (by their parents) for the university’s failure to educate students in safe alcohol consumption or the lack of duty to mitigate damage. (2) Reduce the obligation to hold capital: the strategy reduces the likelihood (frequency) of loss, thus decreasing the amount of capital the university must hold to cover the potential costs of suit – resulting from retaining the risk.
(3) Improved reputation in the community: not only will the school be a symbol of safety and precaution in regard to student drinking amongst, but this will also serve as an attraction to parents of students attending university. As a result, it is likely the university can grow revenue from increased enrollment. The school also adds intangible value – social responsibility. Costs of implementing strategy:
(1) The financial costs to implement the strategy: expenses related to lobbying for reduction in number of liquor licenses in local area, administrative and salary related expenses to pay for individuals advocating this strategy, and costs of monitoring the effectiveness of the risk management decision. (2) Loss of revenues and jobs: as a result of the strategy, there is a reduction in revenue generated from student patronage in local bars and restaurants – removing tax dollars from the local community.
There is also no longer a campus bar, removing a revenue source for the university. In addition, there will likely be a reduction in the provision of jobs in local bars and restaurants during hours with high student attendance, and complete reduction in the provision of jobs that use to result from the operation of the student bar. (3).
Deprivation of student freedom and human rights of being an age of majority, at the expense of a strategy that does not effectively address the issue – students will be forced to consume alcohol in the confinements of private places, which increases risks due to the lack of regulation, of which public restaurants and bars provided through their employees responsibility to abide by the occupational health & safety act – “all individuals in the workplace share the responsibility for ensuring a safe working and living environment1.
1 Occupational health and safety management system . (n. d. ).
Retrieved from http://www. ucalgary. ca/safety/ohs_management Question 2: (A) Based on the structure of the insurance contract, $2500/28500 = 0. 087719298 M2CM is retaining 8. 77% of the risk inherent in the insurance premium. (B) Currently the insurance policy features no loading because they charge less for the coverage than they expect in total annual expected loss. Total expected loss = ? (15. 00*$500) + (7. 0*$1,500) + (1. 0*$10,000) + (0. 1*$150,000) = $43,000/year Expected Claims Cost = $43,000*0. 087719298 = $3,771. 93 Remaining Total expected loss that insurer is responsible for = $43,000 – $3,771. 93 = $39,228. 07. Insurer’s loss at year end = $28,500 – $39,228. 07 = – $10,728. 07.
(Note: does not provide information on number of policyholders, therefore can not calculate average loss per insured, which would allude the cost of claims per individual, which then could be subtracted from premium cost to reveal cost attributable to loading) (C) Based on the following information, the expected total cost of the new policy would end up costing $2,145. 79 more than the original. As a result, Mr. Phillips should reject the new policy and remain with the original policy. New Retention rate = $6000/24000 = 25% Total expected loss = ? (15. 00*$500) + (7. 0*$1,500) + (1. 0*$10,000) + (0. 1*$150,000) = $43,000/year Policy.
Deductible Premium Expected Claim Cost Discounted Expected Claim Cost Total Expected Cost Original $2,500 $28,500 $3,771. 93 $3,592. 31 $32,092. 31 New $6,000 $24,000 $10,750 $10,238. 10 $34,238. 10 Expected Claim Cost = Total Expected Loss to Customer*Retention Rate Original: $43,000*0. 087719298 = $3,771. 93 New: $43,000*0. 25 = $10,750 Discounted Expected Claim Cost: Expected Claim Cost/(1+r)n Original: $3,771. 93/(1. 05) = $3,592. 31 New: $10,750/(1. 05) = $10,238. 10 Total Expected Cost to Consumer = Expected claim cost + Cost of premium Original: $3,592. 31 + $28,500 = $32,092. 31 New: $10,238. 10 + $24,000 = $34,238. 10.