A Case Study in Risk Management by Jerry S.

Rosenbloom
Review by: S. Travis Pritchett
The Journal of Risk and Insurance, Vol. 40, No. 4 (Dec., 1973), pp. 621-622
Published by: American Risk and Insurance Association
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Publications
many to be a confusing and perhaps contradictory area of insurance law.
This reviewer found the investment of
about three months' reading time well
worthwhile and well rewarded. Perhaps
this statement says more about his reading skill level and the state of his ignorance of insurance law than about Professor Keeton's book. It seems safe to
conclude that this book would be an
important addition to the reference colof any individual teaching
lection
insurance courses.

621

In writing on "practical" aspects of risk

management, Dr. Rosenbloom was fortunate to have the counsel and active
involvement of ten members of the Research Committee of the Philadelphia
Chapter of Chartered Property and
Casualty Underwriters. There should be
no inconsistency between good theory
and good practice and this book certainly
represents an attempt to merge the two.
The organization of the book is pedagogically sound in that the first chapter
is largely devoted to the theoretical
concepts of pure risk and the manageA CASE STUDY IN RISK MANAGE- ment of pure risk, while subsequent
MENT. By Jerry S. Rosenbloom. New chapters present information on which to
York: Appleton-Century-Crofts, Educa- base sound risk management decisions
tional Division, Meredith Corp., 1972. 160 without implying what the "correct"
decisions are.
Pages. $7.95.
Chapter 1 represents a good summary
Reviewer: S. Travis Pritchett, Associate of previously existing literature on the
Professor of Finance and Insurance, Uni- nature of pure risk, along with a descripversity of South Carolina-Columbia.
tion of the function and role of the risk
The purpose of this study was to dis- manager in an organization. Two technicover and describe practical guidelines cal points in Chapter 1 bothered this
or methods to be employed in the reviewer. The first point was the definieconomical management of risks for a tion of maximum probable loss as
business organization. It represents a the best estimate of the actual loss that
worthwhile addition to the literature in would occur if the event happened and
the risk management field on the "hows" normally is measured by frequency times
and "whys" of interest to anyone, ranging severity."' The first part of the definition
from students to risk managers to top is acceptable; the latter part, however,
management personnel, needing infor- produces a mathematical product which
mation on the management of pure risk. is more commonly called the annual exThe study excludes risks associated pected loss. It is also unfortunate that
with foreign operations and risks of the the study does not explain the use of both
personnel type. Undoubtedly both types the maximum probable loss and expected
deserve study. By excluding personnel loss.
risks the study follows the traditional
The second questionable statement in
dichotomy between property and liabil- Chapter 1 is: "Other reasons for selfity insurance, and life and health insur- insurance include the possible tax adance. Therefore, from the insurance vantage, since losses are deductible
professor's viewpoint, the book is better though premiums are not, as in insurance,
suited as supplementary reading for a placed with commercial insurers . . ."I
course in property and liability insurance Further discussion of income tax aspects
with a risk management emphasis than of self-insurance costs versus insurance
in a risk management course, which
1 Page 8.
encompasses all types of pure risk.
2Page 11.

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622

The Journal of Risk and Insurance

premiums demonstrates an understanding

of the tax treatment of self-insured losses
and expenses. What is not clear is why
Rosenbloom listed this treatment as a
possible tax advantage. Under normal
circumstances, deduction of irregular selfinsured losses at depreciated book values
would be viewed as a disadvantage of
retention of property and liability risks.
Chapter 2 describes the current status
of the chemical industry and the forecasted industry trends that have risk
management implications. The discussion
smoothly shifts to an actual, mediumsized chemical company, using Special
Chemical Company as a pseudonym. Information on company history, asset locations and values, production, marketing, and finance adequately provide the
background necessary to deal with the
risk management problems of this particular firm. Chapter 3 complements the
description of the firm by stating its
overall corporate objective (i.e., "to employ capital assets, technology, and skills
to produce an acceptable return on
investment")3 and by giving a thorough
description of the specific risk management policy of the Special Chemical
Company.
This approach allows a comparison of
the actual policy statement on risk management with the normative treatment of
risk and risk management techniques
given in Chapter 1. For example, the risk
management policy can be examined in
the light of its consistency with both
Chapter l's definition of risk management as ". . . the function of executive
direction over all phases of pure risk
faced by the business firm that could

affect the ultimate profit of the firm"4and

the overall objective of the specific firm
in this case study.
Chapters 4 through 8 provide details
on the following types of potential losses
3 Page 40.
4Page 5.

at the Special Chemical Company:

Property Damage Risks; Indirect or ConRisks; Crime Exposures;
sequential
Liability and Workmen's Compensation
Exposures; and Contractual Exposures.
Each chapter deals with a particular type
of potential loss and gives adequate verbal description and data to allow a student
to work through the five steps in the
process of risk management and decision
making. (Chapter 1 explains each step
in considerable detail.) Questions at the
end of each chapter probe the subject
matter of risk management sufficiently to
direct a student toward alternative solutions to the risk management problems of
the Special Chemical Company. The
questions serve the additional role of
making the material meaningful and applicable to risk management situations in
other organizations.
The concluding chapter emphasizes
the need for: overall coordination of the
several risk management techniques; reevaluation of risk management practice
to keep up with the dynamic environment in which it operates; and standards
by which top management can appraise
the risk manager. The limitations and
future of risk management as an indispensible function of business management are also discussed. A Case Study in
Risk Management represents another
force to indicate that "risk management
is an idea whose time has come."5
LIFE INSURANCE, Eighth Edition. By
S. S. Huebner and Kenneth Black, Jr.
Meredith Corporation (Appleton-CenturyCrofts), New York, 1972, 902 pages with
appendices.
Reviewer: Peter R. Kensicki, Assistant
Professor of Finance, Ohio University.
The Eighth Edition of Life Insurance is
overpowering. While there is more information in the book than is required
Page 118.

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