Zhetcho Kalitchin

INSURANCE IN INTERNATIONAL
BUSINESS
Assoc. Prof. Dr. Zhetcho Kalitchin

10/4/2010

AIMS

⌧The aim of current course is to explain the

substance, functions and significance of the
insurance, to explain how the Insurers can cover
the losses in the international business relations,
relations
the risk in international sales – CARGO insurance,
carriers liability; business interruption insurance,
CASCO of ships, P & I Clubs, casualty and General
Liability, ecological insurance, D & O insurance.

10/4/2010

Nature of Risk, Classification of Risk,

Management of Risk

The word risk is used frequently in the everyday conversation and it seems that its meaning is well understood. It
seams that risk implies some uncertainty about a given situation. Interesting is the contrast between risk and
chance.
Risk as a cause – we often refer to the to the cause of an outcome
Risk as a likelihood – risk of something happening or likelihoods of occurring
Risk as an object – going to see a risk
Risk as a loss – taking a risk
Risk as a verb – this is the act of a positively placing oneself in a situation where a loss could occur
The Meaning of Risk
Risk is the possibility of unfortunate occurrence.
Risk is a combination of hazards
Risk is unpredictability
Risk is uncertainty of loss
Risk is possibility of a loss
Components of the risk
Uncertainty
Level of the risk
Frequency & Severity
Peril – is the prime cause which gives rise to a loss
Hazard - includes the factors which can influence the outcome

10/4/2010

KAT 1
Zhetcho Kalitchin

Nature of Risk, Classification of Risk,

Management of Risk

Hazards can be physical or moral.

Physical hazards relates to the physical and chemical characteristics of the risk, such as nature of
construction, security protection at a shop, proximity of a house to the river banks.
Moral hazard – concerns the human aspects which may influence the outcome. This usually refers to the
attitude of the insured person.
Classification of the risks
Financial risk – in case of material damageg
Non – financial risks – choosing a carrier, choice of marriage partner, having children
Pure and Speculative Risks
Pure risks involve a loss or at the best break even situation. The outcome can be only unfavorable to us.
There is a whole range of material damage to a factory
Exposure to the risk of theft
Business interruption
Liability – product and general liability
Machinery Breakdown
Speculative risk – pricing of a product
Marketing decisions
Decision of diversification, acquisitions and providing credits to customers

10/4/2010

Nature of Risk, Classification of Risk,

Management of Risk

Frequency / Severity Chart

1.00
0.90
0.80
0.70
0.60
0.50
0.40
0.30
0.20
0.10
0.00
1 2 3 4 5 6 7 8 9 10 11 12 13 14

Fire, flood Ships, Planes

10/4/2010

Nature of Risk, Classification of Risk,

Management of Risk

Fundamental and Particular Risks

Fundamental risks are outside of the control of any one individual or even a group of individuals. In
addition the fundamental risks are felt by large number of people. Fire, Lightning, Explosion, Aircraft (FLEXA),
flood, earthquake, land sliding, land slipping
Particular risks – are much more personal in their cause and effect. Unemployment ? Injury in motor
accidents?
Cost of the Risk
Frequency of the risk –
Monetary costs of financial severity
Human cost in terms of pain and suffering
Risk Management
Risk Identification.
Risk Analysis
Risk Control

10/4/2010

KAT 2
Zhetcho Kalitchin

CALCULATION OF VAPOR CLOUD EXPLSION

DEFINITIONS
Auto Ignition Flash Point
Temperature High Flash Stocks
BLEVE Ignition Energy
Combustible Liquids Intermediate Vapor
Deflagration Pressure Stocks
Detonation Light Ends
Explosion Low Flash Stocks
Explosive Limits Phyrophoric Materials
Fire Reid Vapor Pressure
Flammable Limits UCVE
Flammable Liquids Vapor Pressure

DEFINITIONS
• Flash Point
– Lowest temperature at which a flammable liquid
exposed to air will burn when exposed to sparks
or flame.
• Auto Ignition
g Temperature
– Temperature above which spontaneous
combustion can occur without the use of a spark
or flame.
• Ignition Energy
– Lowest amount of energy required for ignition.

KAT 3
Zhetcho Kalitchin

DEFINITIONS
Flammable Liquids (NFPA)
Liquids with a flash point < 38o C)

Combustible Liquids (NFPA)

Liquids with a flash point > 38o C)

High Flash Stocks

Liquids with flash point > 55o C or stored at least
8o C below its flash point (Heavy Fuel Oil, Lube Oil)

Low Flash Stocks

Liquid with flash point < 55o C) or stored within 8o
C of its flash point (Kero, Diesel, etc.)

Flash Point From Vapor Pressure

• Most organic materials start to burn at 50%

stoichiometric
– For heptane:
• C7H16 + 11 O2 = 7 CO2 + 8 H2O
• Air = 11/ 0.21 = 52.38 Moles/mole of heptane at
stoichiometric conditions
• At LEL with 50% stoichiometric, heptane is
0.5/52.38 = 1 vol. %
• Experimental is 1.1%
• For 1 vol. %, vapor pressure is 1 kPa temperature
= -5o C, Flash point = -4o C

Flash Point Curve

HEL Too Rich

Vapor
Pressure
% In Air

LEL

Too
Lean

Temperature ->
Flash Point

KAT 4
Zhetcho Kalitchin

Auto Ignition Temperature

Minimum Ignition Energy

Effects of Stoichiometry

.
HO2 RH
Ö2

êi2

H2O2 2 RH
RH êi3
. Ö2
R
. .
RH [RO + OH]

ROH ê4
R-R
R R
ê3 H2O
Ö2
êë
ROOH ê2

.
RH RO2
ê5
ê6 ROOR

ê7 í åàêòèâí è ï ðî äóêòè
InH í åàêòèâí è ï ðî äóêòè

KAT 5
Zhetcho Kalitchin

Minimum Ignition Energies

FLAMMABLE MIN. IGNITION ENERGY
mJ
CS2
H2 0.009
C2° 0.011
C2= 0.017
CH3OH 0.07
n- C6° 0.14
n-C7° 0.22
IPA 0.24
ACETONE 0.65
i-C8° 1.15
“FINE” SULPHUR DUST 1.35
“NORMAL” DUSTS ≈1.0

More Definitions

Deflagration
Propagating reactions in which the energy transfer from
the reaction zone to the unreacted zone is accomplished
thru ordinary transport processes such as heat and
mass transfer.
Detonation
Propagating reactions in which energy is transferred
from the reaction zone to the unreacted zone on a
reactive shock wave. The velocity of the shock wave
always exceeds sonic velocity in the reactant.
Fire
A slow form of deflagration

Classification of Explosions

EXPLOSION= Equilibration of high pressure gas with

environment so rapid that energy is dissipated via shock
wave.

Physical explosions result from Chemical explosions result from a

dissipation of pre-existing potential chemical reaction creating the high
energy (without chemical change). pressure gas (may be confined or
unconfined).

Uniform reactions occur (more or less) Propagating reactions start at a point

uniformly throughout the mass of and propagate as a front through the
reactants. mass of reactants.

Thermal explosions result from

Deflgrations occur when energy Detonations occur when energy
exothermic reactions under
transfer across the front is due solely transfer across the front is enhanced
confinement with inadequate
to normal transport phenomena. by reactive shock wave.
dissipation of heat.

KAT 6
Zhetcho Kalitchin

Potential Energy
Stored Volumes of Ideal Gas Methane at
20° C

PRESSURE, TNT EQUIV.,kg.per m

MPa
0.17 0.016
1.7 0.32
17.0 22.0
170.0 104.0

TNT equiv. = 1x 106 Calories/kg (1 MCa/kg)

U V C E
N A L X
C P O P
O O U L
N R D O
F S
I I
N O
E N
D caused when a gas cloud detonates
An overpressure S or
deflagrates in open air rather than simply burns.

KAT 7
Zhetcho Kalitchin

We know directionally what factors cause UVCE.

We can estimate roughly what the damage is
from a UVCE.
We can recommend precautions to minimize
damage.
We can recommend emergency plans to
ameliorate offsite damage.

We must recommend all reasonable measures to

prevent significant leaks from the insured plant and
adhere to high levels of design, inspection,
maintenance and operation.

KAT 8