...Financial Markets, Insurance and Entrepreneurship in the countries of the Middle East and North Africa (MENA) region Draft not to be cited February 27, 2013 1. Introduction The goal of the paper is to focus on the countries of the Middle East and North Africa (MENA) region and particularly those of the of the South of the Mediterranean, and examine the relationship between insurance – defined as the capability of covering the cost of future harmful events-and entrepreneurship broadly defined as the capability to start independent businesses activities and possibly introduce new combinations of productive factors. The analysis is based on the distinction between uncertainty and risk that Knight unveiled (Knight, 2012) arguing that risk involves situations where a decision maker face unknown outcomes but known ex-ante probability distributions, while uncertainty is characterized by situations in which the probability distribution of a random outcome is unknown. Consequently, while risk can be covered by insurance, uncertainty normally is not. The other pillar of this research is the role of entrepreneurship; a factor that the economic literature has not considered for long time and that in the last 20 years has become the center of any strategy for economic growth in emerging and advanced economies. The discovery of the role of entrepreneurs dates back to Schumpeter (Schumpeter, 1982a) who regards entrepreneurs as the engine of economic growth. Schumpeter (Schumpeter...
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...What is Risk? A. Uncertainty Concept—risk traditionally has been defined as uncertainty B. Objective Risk 1. Defined as the relative variation of actual loss from expected loss 2. Declines as the number of exposure units increases 3. Is measurable by using the standard deviation or coefficient of variation C. Subjective Risk 1. Defined as uncertainty based on one’s mental condition or state of mind 2. Difficult to measure II. Chance of Loss A. Objective Probability 1. A priori—by logical deduction such as in games of chance 2. Empirically—by induction, through analysis of data 2 Rejda • Principles of Risk Management and Insurance, Tenth Edition B. Subjective Probability—a personal estimate of the chance of loss. It need not coincide with objective probability and is influenced by a variety of factors including age, sex, intelligence, education, and personality. C. Chance of Loss Distinguished from Risk—although chance of loss may be the same for two groups, the relative variation of actual loss from expected loss may be quite different. III. Peril and Hazard A. Peril—defined as the cause of loss B. Hazard 1. Physical hazard—physical condition that increases the chance of loss. Examples are icy streets, poorly designed intersections, and dimly lit stairways. 2. Moral hazard—dishonesty or characteristics of an individual that increase the chance of loss 3. Morale hazard—carelessness or indifference to a loss because of the existence of insurance 4. Legal...
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...Is Rental Insurance A Good Deal? QNT/561 April 23, 2012 Subhendu Roy In the dynamic society knowledge is always incomplete, yet a decision must be made. “Decision making is a process of first diverging to explore the possibilities and then converging on a solution(s)" (Cooper & Schindler, 2011). Many decisions are made under uncertainty; that is, with limited information about their potential consequences. The outcome can vary greatly. Most of time uncertainty exists whenever people determine a decision on a daily basis. A decision to buy rental car insurance will be answered by using the concept of probability. This paper will focus on the application of various probabilities to formulate the decision under uncertainty. Discreet outcome from statistical analysis as well as trade-offs between accuracy and precision obtained by different probabilities concepts shall be evaluated. According to car accident statistic stats, auto, fatal, and drunk driving, the estimation of having an accident is of one in 16 cars. It has provided useful information to make important decision. There are a number of probability concepts that can be used in determining the results from the research data that was given. Probability is used to limit the uncertainty of the decision on whether to buy the rental car insurance. The probability concept that works the best and meets all of the criteria from the information that was gathered is the Bayes’ Theorem. The application of Bayes' theorem helps...
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...What is Takaful Takaful - Islamic insurance - is founded on the cooperative principle and on the principle of separation between the funds and operations of shareholders, thus passing the ownership of the Takaful (Insurance) fund and operations to the policyholders. The premiums collected from the policyholders are considered as donations and they constitute the Takaful fund from which all claims are reimbursed. At the end of each financial year, after deduction of expenses, any remaining cash surplus will not be retained by the company or its shareholders, but returned to the policyholders in the form of cash dividends or distributions. In this respect, Takaful business is different from the conventional insurance in which the policyholders, rather than the shareholders, solely benefit from the profits generated from the Takaful and Investment assets. The Investment assets representing the Takaful fund that accumulate over the retained reserves, surpluses and provisions are invested by the shareholders who manage the company on behalf of the policyholders. The shareholders are rewarded with a percentage of the profit on these investments. | | | | |Can Muslims engage in risk control? | | | | | | | |It is a Muslim's belief that everything that happens in this world is by the will (Qadha and Qadar) of Allah. Similarly...
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...lived due to the uncertainty caused by World War I. This uncertainty created the need to accurately evaluate “the value of individual dignity and freedom, about the proper organization of society, and ultimately about the possibility of human perfection.”Lagerfield (1999). Due to the uncertainty that was created, Lagerfield felt personal acquisition of wealth and comfort were not the keys that lead to taking a more realistic view of the future, but the ideology of risk management brought about the need to forgo the frivolous waste of resources. The evolution of risk management in its infancy stages derived from the environmental shift that occurred in response to those catastrophic events such as the Great Depression, Three Mile Island, and the devastation of technological failure noted during the launch and disintegration of the Challenger to name a few. Although the ladder that lead to a full paradigm shift in the way in which cause and effect were viewed; the need to gain a better understanding of appropriately managing risk became paramount. Dun and Renner (2008) believed “the strategies to manage risk typically include transferring the risk to another party, avoiding the risk, reducing the negative effect or probability of the risk, or even accepting some or all of the potential or actual consequences of a particular risk.” Prior to the 20th Centuries focus on identifying cause and effect of historically devastating events, the status quo of uncertainty remained. ...
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...INSURANCE AND RISK 1.0 Definition of insurance. Insurance is the equitable transfer of the risk of a loss, from one entity to another in exchange for payment. It is a form of risk management primarily used to hedge against the risk of a contingent, uncertain loss. An insurer, or insurance carrier, is a company selling the insurance; the insured, or policyholder, is the person or entity buying the insurance policy. The amount of money to be charged for a certain amount of insurance coverage is called the premium. Categories of risk include:- 1. Financial risks which means that the risk must have financial measurement. 2. Pure risks which means that the risk must be real and not related to gambling 3. Particular risks which means that these risks are not widespread in their effect, for example such as earthquake risk for the region prone to it. 1.1 Basic Characteristics of insurance. The insurance has the following characteristics which are, generally, observed in case of life, marine, fire and general insurances. 1.Sharing of Risk:- Insurance is a device to share the financial losses which might befall on an individual or his family on the happening of a specified event. The event may be death of a bread-winner to the family in the case of life insurance, marine-perils in marine insurance, fire in fire insurance and other certain events in general insurance, e.g., theft in burglary insurance, accident in motor insurance, etc. The loss arising nom these events if insured...
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...EXAM 1 Material Pure risk – when there is uncertainty as to whether loss will occur. No possibility of gain is presented by pure risk----only the potential for loss. Loss or no loss. Ex – the uncertainty of damage to property by fire or flood Not an example of pure risk? Fluctuations in the price of fuel Speculative risk - when there is uncertainty about an event that could produce either a profit or a loss. Loss or gain. Ex---business ventures and investment decisions. Gains as well as losses may occur. Exchange rate risk and Marketing campaign Not an example of speculative risk? Employee injury risk Static risks – can be either pure or speculative, stem from an unchanging society that is in stable equilibrium. More predictable Ex of pure static risks – uncertainties due to random events such as lightning, windstorms, and death. Ex of speculative static risks – business undertakings in a stable economy Dynamic risks – produced b/c of changes in society. Ex of dynamic risk – urban unrest, increasingly complex technology, and changing attitudes of legislatures and courts about a variety of issues. Political risks Political risk in developing countries is an example of = Dynamic risk Subjective risk – refers to the mental state of an individual who experiences doubt or worry as to the outcome of a given event. Is essentially the psychological uncertainty that arises from an individual’s mental attitude or state of mind...
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...theft DIVERSIFIABLE RISK: Affects individual or small groups (can be reduced or eliminated) ENTERPRISE RISK: All major risks faced by business firms STRATEGIC RISK: Uncertainty regarding firm's financial goals OPERATIONAL RISK: Firm's operation results FINANCIAL RISK: Uncertainty of loss due to adverse changes ENTERPRISE MANAGEMENT RISK: Single program all major risks faced by business firms (PSSOF) HAZARD: Condition that increases the chance of loss HEDGING: transferring risk to a speculator INCORPORATION: Business firm transfers risk to creditors LEGAL HAZARD: Characteristics of legal system that increases frequency of loss LIABILITY RISKS: Possibility of being held legally liable for someone else (no max limit) LOSS EXPOSURE: Any situation where a loss is possible, whether a loss occurs or not LOSS PREVENTION: Activities to reduce frequency of loss MORAL HAZARD: Dishonesty in an individual that increases frequency of loss NONDIVERSIFIABLE RISK: Affects entire economy or large groups (can't be reduced or eliminated) NONINSURANCE TRANSFERS: Transfer risk to another party OBJECTIVE PROBABILITY: infinite observations and no change in underlying condition OBJECTIVE RISK: Relative variation of actual loss from expected loss PERIL: Cause of the loss PERSONAL RISK: Risk that directly affect individual or family PHYSICAL HAZARD: Physical condition that increases frequency of loss PROPERTY RISK: Property losses from destruction or theft PURE RISK: Situation where...
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...Connor Pozzi 11/24/14 ECON1116 Asymmetry in Health Insurance: Adverse Selection, Welfare Loss, and the Key to Vanquishing Market Distortion In today’s society, even more than ever before, information is key. With the introduction of such modern marvels as Twitter, mobile notification alerts, and around the clock news coverage, the next generation can be defined as though who want information accessible at all times. Most believe that this accessibility of information is much more efficient, and leads to better outcomes and greater utility for the individual. On the contrary, in the colonial times, information was scarce and often times inaccurate. This caused more frustration, less utility, and poorer outcomes. The accessibility issue of general information has undergone vast improvement over time, but in health insurance markets, information asymmetry has continued to plague the system. This asymmetry causes what is known as adverse selection, in which the market suffers from the “adverse” outcome of only having high risk, costly individuals in the market, as opposed to the lower-risk individuals who could also benefit from insurance. Adverse selection strongly decreases consumer welfare, and leads to an inefficient outcome in which market failure persists in what is known as the adverse selection death spiral. However, in order to solve adversely selected markets, it is imperative that the system allows for the collection of better information (and revert to market...
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...Introduction All human activities are subject to risk of loss from unforeseen events. To alleviate this burden to individuals, what we now call insurance has existed since at least 215 BC. This concept has been practiced in various forms for over 1400 years. In Islam, the concept of insurance is takaful. Q finance dictionary defines that takaful is a Islamic insurance in which all participants are members and contribute to a pool of funds that provide assistance in the event of loss on the part of any of the participants. It is an Islamic insurance arrangement avoids the prohibitions against gambling and interest in Islamic Law. Takaful, it originates from the Arabic word Kafalah, which means "guaranteeing each other" or "joint guarantee". It is based on the principles of ta’awan (mutual cooperation) and Tabarru’ (donation), where a group of takaful participants (policy-holders) agree between themselves to share the risk of a potential loss to any of them, by making a donation of all or a part of their takaful contribution (premium) to compensate for a loss. Takaful-branded insurance is based on Shariah, Islamic religious law and refer the principle of cooperation, not sale or exchange, and mitigates the objectionable aspects of gharar (uncertainty), maisir (gambling) and riba (interest). In conventional insurance the risk is transferred from the policyholder to the insurance company which brings the elements of uncertainty and chance in contract as one of the two a party makes...
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...“If there's one thing that's certain in business, it's uncertainty.” Stephen Covey. Uncertainty is the lack of information, which makes the probabilities of a defined outcome unknown. Unfortunately, running a business primarily depends on planning for a set of known outcomes. Businesses gather available present and past information to formulate a futuristic prediction. However, predictions, no matter how well-considered they are, cannot account for all variables in business. Therefore, businesses generate a set of probabilities for variable future changes and make decisions based on those probabilities. This is known as risk management. There are a lot of sources of uncertainty such as governmental regulations, disasters affecting markets, or even scientific and technological discoveries that change supply or demand. These uncertainties represent great obstacles for businesses because they might lead to poor decisions, which may result in great losses. Managing uncertain changes is tricky. When uncertainty builds, businesses must learn to adapt; otherwise they will sink. In the following paragraphs we discuss two instances where businesses have been affected by outside factors, which have created uncertainty, and how those companies adapted to continue doing business in uncertain times. One of our team members works in the insurance industry at Campus Benefits, a private broker working in the educational market. In 2010, the 111th Congress passed healthcare legislation, the...
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...Institute of Economic Affairs Essay Competition Entry “Because of market failure and to prevent inequality, the government should finance and provide all healthcare.” Given this common view, whilst making some reference to methods of providing and financing healthcare in other European countries, discuss whether government finance and provision of healthcare is likely to maximise welfare? Healthcare is categorised as a merit good as consuming it provides benefits to society and to the individual consumer. For instance, immunisation against a contagious disease gives us protection and results in a private benefit as well as an external one, to those who are protected from catching the disease from those who are inoculated. However, few would want inoculation only to protect others. Therefore, the demand for healthcare will be less than the socially efficient quantity. Having great advances in new technologies, treatments and drugs improves our health service’s ability to supply, as well as encouraging demand to such an extent that demand substantially exceeds supply. Unfortunately, this creates long waiting lists and therefore a scarcity of beds available for treatment. If we privatised the NHS, it would allow prices to increase to show how much it really costs to supply. But obviously, this would be very controversial and cause immigration rates to drop. This could be seen as a bad thing for some, due to the fact that many are very productive and willing to work for...
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...INSURANCE CONCEPT: Insurance is a form of risk management primarily used to hedge against the risk of a contingent, uncertain loss. Insurance is defined as the equitable transfer of the risk of a loss, from one entity to another, in exchange for payment. NATURE: The purpose of any insurance is to provide economic protection against the losses that may be incurred due to chance events such as: 1. Death 2. Disability 3. Medical expenses 4. Home or automobile damage, etc. FUNCTIONS: Basic functions of Insurance 1. 1.Primary Functions 2. 2.Secondary Functions 3. 3.Other Functions Primary functions of insurance • Providing protection – The elementary purpose of insurance is to allow security against future risk, accidents and uncertainty. Insurance cannot arrest the risk from taking place, but can for sure allow for the losses arising with the risk. Insurance is in reality a protective cover against economic loss, by apportioning the risk with others. • Collective risk bearing – Insurance is an instrument to share the financial loss. It is a medium through which few losses are divided among larger number of people. All the insured add the premiums towards a fund and out of which the persons facing a specific risk is paid. • Evaluating risk – Insurance fixes the likely volume of risk by assessing diverse factors that give rise to risk. Risk is the basis for ascertaining the premium rate as well. • Provide Certainty – Insurance is...
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...IMD-1-0303 INTERNATIONAL 31.03.2011 ALLIANZ: FEELING THE HEAT OF UNCERTAINTY (A) IMD Research Associate Tania Braga prepared the revision of the case under the supervision of Aileen IonescuSomers, Director of the Forum for Corporate Sustainability Management at IMD and Professor Arturo Bris, as a basis for class discussion rather than to illustrate either effective or ineffective handling of a business situation. The original case “Feeling the Heat: Allianz and WWF pushing an industry towards climate change action” by Tania Braga, Aileen IonescuSomers and Professor Corey Billington won the Finance and Banking Award in the 2009 EFMD Case Writing Competition organized by the European Foundation for Management Development . MUNICH, GERMANY: AUGUST, 21 2007. Joachim Faber, CEO of Allianz Global Investors and member of the Allianz SE Management Board, reviewed the proposed terms for a threeyear agreement with WWF, the global NGO. He was eager to engage in this visionary initiative, aiming at pushing the financial industry action on climate change to the next level. To his knowledge, this was the first ever collaboration between an NGO and a financial services company with such a level of ambition. Looking back, he could see that Allianz had already consolidated its position as thought leader on the climate change arena and effectively contributed to raise awareness among major players of the financial industry. However, he felt that moving from thought leadership to action...
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...An Analysis of Toro Corporation’s S’No Risk Program Risk analysis from the point of view of Toro: Toro bears relatively minimal risk on this S’No risk program the year they ran it, as the most they are going to pay-out to the insurance company in 1983 is around $680K, while in-turn profiting $106K. (Bell, 2004). The year they ran the promotion, a confluence of elements came into play: the insurance company erroneously quoted them 2.1% of the retail value of the snowthrowers covered; the snowfall was significantly higher than the year before, but because of this premium cap by the insurance company, it did not lose its shorts on its liabilities. Additionally, they did not have to pay vendors the 10 percent discount they normally did in the fall. That was an increase of 8% in profit for Toro, plus the vendors and consumers were delighted. Risk analysis from the point of view of the insurance companies: American Home Assurance carried the most risk. According to the case study, they agreed to meet all claims from the program for only 2.1 percent of the retail value of the snowthrowers covered (Bell, 2004). The total number of rebates that year of the promotion was 19 percent. While Toro, hedged its losses, American Home ate 17 percent of the cost of rebates. If Toro were to continue the program it would increase the premium to 8% of the total sales, which amounted to an average of the last four years of actual payouts by Toro (Bell, 2004). American Home would try to...
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