Insurance and risk Management

INSR-6011

Group Case Study 

The Corporation of the City of Whoville

Instructions

Complete the following assignment in groups of no more than 3 or 4.  Note the due date for each portion of the assignment and refer to your detailed class schedule for the submission requirements.  Marks are allocated as indicated for each section of the assignment. 

Students will be penalized 25% per day late penalty for any assignments submitted after the beginning of the class in which the assignment is due.  Due dates are indicated on the class schedule.

This Group Case Study Assignment is worth a total of 30% of your final grade.

The Corporation of the City of Whoville

Whoville is a city of about 50,000 inhabitants.  It has some small industries but because of its location in the Muskoka area, has an important year round tourist trade.  The city is promoted as a haven for people who want to get away from the larger cities for their retirement.  Every year in July Whoville hosts a two week long music and folk festival to increase tourism.   In 2015 the festival saw its largest attendance ever.

The city provides all the usual municipal services including, but not limited to, water and sewage treatment, road and sidewalk maintance, social and leisure programs, parks maintenance, and emergency response services.  There is a special emphasis on recreational and tourist facilities. The city currently manages 12 different facilities. 

Much of the city works projects, such as snow plowing and property maintenance, is transferred to independent contractors.

The goal of Whoville’s Risk Management Department is to “provide support by protecting the Corporation from financial consequences resulting from the destruction, damage or loss of its assets and/or its liability to others”.  The focus is on risk management techniques and financing methods which promote financial stability.

You are the risk management team employed by the Coporatation of the City of Whoville. 

Part A:  Estimating Hazard Risk

“Estimating hazard losses entails calculating an estimate of the expected (or average) losses for the coming year based on past data…”  (Risk Financing, page 2.6)

Based on the financial information attached to this assignment, and the process as outlined in Chapter 2:  Estimating Hazard Risk in your text, calculate the municipalities risk associated with General Liability Losses.  These are losses in which the municipality was found liabile for bodily injury or property damage that occurred to a third party.

Your team has the following information available to them from the previous five (5) year term;

• In 2011 there were a total of 41 claims resulting in paid losses of $187,000 and loss reserves (which include the loss adjustment expense reserves) of $82,000.
• In 2012 the total amount of losses increased to 67 resulting in paid losses of $354,00 and loss reserves (which include the loss adjustment expense reserves) of $195,000.
• In 2013 the total amount of losses increased again to 124 resulting in paid losses of $437,00 and loss reserves (which include the loss adjustment expense reserves) of $201,000.
• In 2014 the total amount of losses decreased slightly to 112 resulting in paid losses of $420,00 and loss reserves (which include the loss adjustment expense reserves) of $179,000.
• In 2015 the total amount of losses increased to their highest yet at 154 resulting in paid losses of $583,000 and loss reserves (which include the loss adjustment expense reserves) of $250,000.

1.  Calculate the Total Losses Incurred for each accident year.
2. Using the development factor provided calculate the Estimated Ultimate Incurred Losses.
3. Using the trend factors provided calculate the Adjusted Total Incurred Losses.

Ultimate Incurred General Liability Losses

                                                                                                                                                                                    (20 marks in total)

Part B: Risk Financing Options

Choose three (3) of the methods of risk financing that we have discussed in this class;

1. Transfer through insurance
2. Self-insurance plans
3. Retrospective rating plan
4. Reinsurance
5. Captive insurers
6. Contractural risk transfer
7.  

1. What are the advantages and disadvantages of each risk financing method?             (10 marks for each option)   
2. Explain, in detail, how each risk financing option would be implemented within your organization.

(15 marks for each option)

1. Chose what you believe to be the best risk finance method for this client.  Why do you think it is the best option?  Why do you think this method would be an effective part of the risk management plan for the City of Whoville?  Is there a specific risk or type of risk this would best protect against?                                (15 marks)

                                                            (90 marks total)