Abstract

To executives of a great many companies, risk management is a challenging and always important job. It deals with questions such as these, what is the exposure to risk and what are its dimensions? How can the exposure to risk be reduced? What strategy should be used in coping with existing risks? Finding answers to these questions is the concern of risk management. The emphasis placed on various aspects of risk management varies considerably from company to company. A key managerial activity is to make decisions in light of future uncertainties and existing complexities. This activity can be assisted by analytical and computer-based approaches that evaluate rationally and consistently complex decision problems. This report demonstrates the use of such an approach to an insurance purchasing decision problem, As shown, not only substantial savings can be expected but also an inconsistent decision could be avoided once the decision maker's attitude toward risk taking has been formulated and applied accordingly. Similar approaches have been developed for analyzing experience-rated group life insurance proposals, as well as for evaluating reinsurance decisions.