- MPS701 Principles of Risk & Insurance
Assignment - Trimester 1, 2015
Due Date: Monday, 4th May, 2015
Weight: 40% of the unit
This assignment is designed to develop your research skills whilst familiarising you with the wide variety of general insurance products in the market, the differences between products, their application to certain scenarios and various insurance concepts.
Question 1 (25 marks)
PowerRadio Ltd owns and operates a radio station in Victoria. It is owned by three partners, Harry McDonald, Jason Windsor and Tony Ward. Mr McDonald, age 68, owns 45% of the company’s shares and is the chairman and managing director of the company. Mr Windsor, age 70, owns 32% of the company’s shares and Mr Ward, age 75, owns the remaining 23% of the shares. Mr McDonald’s only son, age 48, is currently PowerRadio’s chief operating officer and is widely believed to be the next in line to take over the leadership role after his father retires. Mr Windsor’s only daughter, age 43, is currently the executive director of Melbourne Television and Radio College. Mr Ward has no children.
PowerRadio’s tangible assets include one building and broadcast towers with a total book value of $50.8 million and a replacement value of $60.3 million, and equipment such as satellite dishes, transmitter, audio equipment, computers, a helicopter, 10 cars, 3 vans, and furniture with a total book value of $48.2 million and a replacement value of $76.5 million. The building and some of the towers are situated in the outer suburban area. The building is equipped with a water sprinkler system installed 10 years ago. It also has 5 dry chemical, 2 water, 1 carbon dioxide and 3 foam extinguishers installed. The maintenance of the broadcast towers is conducted annually by its tower crewman. There is a cafeteria inside the building, which is run by an external contracted party. The cafeteria opens daily for staff and serves breakfast and hot home style meals from 6am to 4pm. The major portion of the site is enclosed with a wire mesh fence. The public supply nearby provides energy for lighting and major power requirements and there are no standby generators on its premises. The factory of Western Furniture, a manufacturer of quality furniture for hospitality and retail markets, is located within 500m of PowerRadio’s premises. On Western Furniture’s premises, some timbers are stored in the open at the rear of its main building.
PowerRadio has 50 employees, including 6 management senior executives, 15 professional executives (producers, directors, announcers, reporters and etc.) and 29 program production, sales and advertising, technical and administrative support employees. It broadcasts a variety of programs including national and local news, music and entertainment programs, interviews, and commercial advertisements. In recent years, about 70% of the station’s radio commercials were produced by one talented radio advertising producer. PowerRadio has two highly experienced and popular radio announcers. One of them who hosts a popular breakfast radio program is known for his controversial ways of presenting political opinions.
PowerRadio, which serves mainly Melbourne northern and eastern suburbs, actively promotes cultural activity by inviting many artists to its call-in talk shows to discuss their work and converse with the listeners. In addition, it offers guided radio station tour for school children, which can be arranged by appointment and includes a visit to an on-air radio studio, control room and music library. The music library stores a large collection of old recordings that have great historical value. The management has launched a project to convert the recordings into digital formats that can be stored on the digital media. As part of the company’s investment, PowerRadio has a small collection of valuable sculptures by local artists, which are on display in the managing director’s office and boardroom.
PowerRadio's primary source of revenue is the sale of advertising time to local advertisers. A few of its current affairs programs are sponsored by its major advertisers. The historical data shows that its maximum sales revenue occurred during summer months of December to
3 February. Hence the company’s revenue and profitability may be adversely affected by the occurrence of any loss-producing events before summer’s special sporting events such as Australian Open Tennis Championships and Commonwealth Bank Series. Many of PowerRadio’s equipment was upgraded and installed 8 years ago. Due to the growth of new media such as digital radio and internet radio, the radio broadcasting industry is becoming highly competitive. Currently, PowerRadio does not offer digital broadcasting on the internet. To increase the revenue, it has purchased some investment properties in Victoria and Queensland and 15 per cent of the shares of an Indonesian company which owns and operates a television station in Indonesia. Furthermore, it will apply for the renewal of the commercial radio licence three years from now under the provisions of the Broadcasting Services Act 1992.
Identify and describe all loss exposures that PowerRadio may face. In your response you must show that you have considered the five risk treatment techniques (avoidance, loss prevention, loss reduction, retention, noninsurance transfer, and insurance). Give specific examples of how each risk treatment technique may be used to address the loss exposures and explain why the techniques selected and/or examples given are appropriate. When describing the examples of risk treatment, be sure to name the loss exposures treated by the techniques.
Note: The above case study was adapted from the case study ‘Risk management at a television station’ in Dorfman, M S 2007, Introduction to risk management and insurance, 9th edn, Prentice Hall, Upper Saddle River, pp.63-64.
Question 2 (15 marks)
Eric Grant is a self employed tradesmen and amateur photographer who has a Listed Events House and Contents policy with CGU. After a particularly busy period, during which Eric is very busy working and hosting an old school friend Laurie Baron who is visting from overseas, he decides to take Laurie away for a week to visit some wineries in the country.
While away, Eric’s 18 year old son Jack has a party at which some party goers spill some lots of red wine over an antique lounge suite. In the course of trying to clean the red wine, the party goers destroy the lounge suite even more causing roughly $4000 damage. The next night while Jack is at another party, Eric’s house is broken into, furniture broken and paint sprayed over the walls in a number of rooms. Among the items stolen are:
• Eric’s work trailer from his carport. This trailer is of metal construction with padlocked drop down sides with all his tools that he tows around on his job.
• About $6000 worth of tools kept in his garage.
• Some expensive timber ($2,000 stock) that Eric has been using to build some furniture at home for a client.
• 2 bicycles (worth $2,500 each) that Eric uses for triathlon racing. These were stolen from the back yard.
• Eric’s personal computer that he keeps all his work records on.
• Laurie’s laptop that he purchased prior to coming to Australia so he could keep up to date with his share portfolio while in Australia.
As the thieves were leaving, it appears that they have turned out of the driveway too quickly colliding with the gate post causing the gate to fall onto, and destroy, a number of plants and the garden edging.
To add to Eric’s misfortune, his car was broken into while at a winery and about $8000 worth of photography equipment was stolen and then on the day after he returned from his long weekend, he receives a letter from his accountant informing him that the Taxation Department will be auditing him the following week.
Advise the Eric Grant on his claim. The CGU Listed Events PDS wording can be found by searching the CGU site for “Listed Events PDS” in the Personal section of the site
http://www.cgu.com.au . Consider all aspects of the loss, the policy wording, what is and isn’t covered, reasons why, the amounts to be paid etc.
Your assignment should be well laid out and easy to follow, similar to a report that you would present to your manager who had asked you to formulate a report to present to the management committee of an insurance firm. There is a word limit of 3,500 words – please indicate the total word count on your submission.
You may only submit ONE document for this assignment.
There is a forum for discussion of the assignment on Cloud Deakin. If you want to ask a question then it is only fair that all students see both the question and the reply. In order to facilitate this process please do not address questions to me via email, but do use the forum!
You may choose to work in a team (of two people) or to complete the assignment on your own. There is much to be said for both methods of working – choose the alternative that best suits your learning style. I will initially assign a separate Group to each student enrolled in the unit – if you choose to work in a team you MUST let me know a week BEFORE the due date (an email with both your names and student numbers will suffice) and I will then assign you to a new Group.
All assignments are to be submitted via the “Dropbox” on Cloud Deakin – I will not accept assignments that are submitted in any other way (e.g. email or in hard copy), please do not spoil your mark for the unit by ignoring this instruction.
Late assignments will be penalised by deducting 1 mark for each day that the assignment is late!!
When answering the questions for this assignment, you must demonstrate your understanding of the problems/issues given in the questions and articulate the rationale for your analysis or point of view. Marks will be awarded for evidence of understanding and analysis, but not for a mere regurgitation of the policy wordings, wordings in the insurance acts/regulations or information found in the works of others.
Referencing is very important if you use other resources in writing your answer. Use either Harvard system for referencing if you do not cite any law cases, or else use Law Style. Please refer to the ‘Deakin guide to referencing’, which you will find under the “Learning Help” tab on the home page of the unit.
Queries should be left in the Assignment Discussion area (not Topic Discussion Forum or General Unit Discussion Forum) of CloudDeakin which I will check on a regular basis.
Answer all questions.