3. UNDERSTANDING BUSINESS RISKS
• Hackers and viruses are an increasing threat to computers, and identity theft
is a commonplace.
• Theft and fraud can destroy a business.
• Such reports are so much a part of the news that we tend to accept these
events as part as everyday life. But with the losses of property, equipment,
transportation, and other resources mean a great deal to the people and
origination injured by them.
• In some states, insurance against such loss is not available or is too
expensive for high-risk businesses.
• Executives in Quality Digest found more than 90% were building or want to
build enterprise risk management (ERM) into their organizations.
4. HOW RAPID CHANGE AFFECTS RISK
MANAGEMENT:
• Risk goes beyond the obvious dangers of fire, theft, or accident. It is inherent
in every decision a manager makes, and the prudent company assess its
exposure in all of them.
• Risk managers are expanding their expertise into human resources, IT,
security, legal, site construction, and more.
• Change is occurring so fast that it is difficult to identify new risks until they
are upon us.
6. RISK:
• Is the chance of loss, the degree of probability of loss, and the amount of
possible loss. There are two kinds of risk:
• Speculative Risk- a chance for either profit or loss
• Pure Risk- the threat of loss with no chance of profit
7. THE TYPE OF RISK THAT MOST CONCERNS BUSINESSPEOPLE IS PURE
RISK. IT THREATENS THE VERY EXISTENCE OF SOME FIRMS. ONCE
THEY IDENTIFY PURE RISKS, FIRMS HAVE SEVERAL OPTIONS:
• Reduce the risk.
• Avoid the risk.
• Self-insure against the risk.
• Buy insurance against the risk.
8. REDUCING RISK:
• A firm can reduce risk by establishing loss-prevention programs such as fire
drills, health education, safety inspections, equipment maintenance, accident
prevention programs, and so on.
• Employees as well as managers can reduce risk. The beginning of an
effective risk management strategy is a good loss-prevention program.
However, high insurance rates have forced some firms to go beyond merely
preventing risks to avoiding them, in extreme cases by going out of business.
9. AVOIDING RISK:
• We can't avoid every risk. There is always the chance of fire, theft, accident,
or injury. But some companies are avoiding risk by not accepting hazardous
jobs and by outsourcing shipping and other functions.
• Many companies have cut back on their investments to avoid the risk of
financial losses, especially since the market fall of 2008–2009.
10. SELF- INSURANCE:
-Is the practice of setting aside money to cover routine claims and buying only
“catastrophe” insurance policies to cover big losses.
• One of the riskier self-insurance strategies is for a company to “go
bare,” paying claims from its operating budget instead of from a special
fund. The whole firm could go bankrupt over one claim if the damages
are high enough.
• A less risky alternative is to form group-insurance pools that share
similar risks.
11. BUYING INSURANCE TO COVER RISK:
• Insurance is the armor individuals, businesses, and nonprofit organizations
use to protect themselves from various financial risks. Together they spend
about 10 percent of gross domestic product (GDP) on insurance premiums.
The federal government provides some insurance protection, but individuals
and businesses must cover most on their own.
12. TYPES OF RISKS:
• Uninsurable Risk- is one that no insurance company will cover.
• Market Risk
• Personal Risk
• Political Risk
• Operational Risk
• Insurable Risk- is one the typical insurance company will cover, using the
following guidelines:
• The policyholder must have an insurable interest (The possibility of the
policy holder to suffer loss) which means the policyholder is the one at risk
to suffer a loss. You cannot buy fire insurance on your neighbor's house and
collect if it burns down.
13. INSURABLE RISK (CONT.)
• The loss must be measurable
• The Chance of loss must be measurable
• The loss must be accidental
• The insurance company's risk should be dispersed; that is, spread among
different geographical areas so a flood or other natural disaster in one area will
not bankrupt the insurance company.
• The insurance company must be able to set standards for accepting the risk.
15. UNDERSTANDING INSURANCE POLICIES:
• Insurance Policy- Written contract between the insured, whether an
individual or organization, and an insurance company that promises to pay
for all or part of the loss by the insured.
• Premium- is the fee the insurance company charges, the cost of the policy
to the insured.
• Claim- Statement of loss that the insured sends to the insurance company to
request payment.
• Insurance companies are designed to make a profit like all of the private
businesses.
• Gather data to determine the extent of the various risks.
16. LAW OF LARGE NUMBERS & PREMIUMS
• The law of large numbers is what makes it possible for insurance companies to
accept risk.
• Law of large numbers- Principle that if a large number of people are
exposed to the same risk, a predictable number of losses will occur during a
given period of time.
• When an insurance company predicts the number of losses that are likely to
occur, it can determine the appropriate premiums for each policy it issues
against that loss.
• The premium will be high enough to cover expected losses and also earn a profit
for the firm and its stockholders.
• Many insurance companies today are charging high premiums for the costs they
anticipate from the increasing numbers of court cases and high damage awards.
17. RULE OF INDEMNITY:
• A rule saying that an insured person or organization cannot collect more than
the actual loss from an insurable risk.
• You also cannot buy two insurance policies as well as two insurance
companies and collect from both for the same loss.
• You cannot gain from risk management, you can only minimize losses.
18. TYPES OF INSURANCE COMPANIES:
• Two types:
• Stock insurance company- type of insurance company owned by
stockholders.
• Mutual insurance company- type of insurance company owned by
its policyholders
• Nonprofit organization, and any excess funds (over losses,
expenses, and growth costs), go to the policyholders/ investors
in the form of dividends or premium reductions.
20. THERE ARE MANY TYPES OF INSURANCE TO COVER
VARIOUS LOSES:
• Property
• Liability
• Insurance
• Health insurance
• Life insurance
21. HEALTH INSURANCE:
• Businesses may offer some sort of health insurance to choose from for their
employees. everything from dental, hospital, eye care, and prescription drugs
may be included.
• Often employees may choose between options from health care providers:
EX-Blue cross/Blue shield.
23. HEALTH SAVINGS ACCOUNT
• These are tax-deferred savings accounts linked to low-cost, high deductible
health insurance policies.
• This allows the employer to take the money from high cost health insurance
and put it into a health savings account and employees can use it when
needed and the leftover money can then be kept by the employee at the end
of the year.
24. DISABILITY INSURANCE
• This replaces part of your income. Up to 50-70% if you become disabled or
unable to work.
• You have to be disabled for at least 60 days to start collecting.
• The premiums for disability insurance vary according to age, occupation, and
income.
25. WORKERS COMPENSATION
• There are laws that require all employers have this insurance for their
employees.
• This is insurance that guarantees payments of wages, medical care, and
rehabilitation services for employees who are injured on the job.
• This also pays benefits to the survivors of those who dies as a result of work
related injuries.
• The cost of this insurance is based on the company’s safety records, how
many employees are on payroll, and the types of hazards that the workers
face.
26. LIABILITY INSURANCE
• This covers people who are liable for professional negligence. For example:
If a lawyer gives bad advice and the client loses money the client may sue
the lawyer for an amount that is equal to that lost.
• Liability insurance will then cover that and pay the lawyers loss.
27. LIFE INSURANCE FOR BUSINESSES
• Life insurance is insurance that ensures the people who are left behind from
a deceased loved one so they can keep there business going. Or for the
immediate family of the deceased.
• Entrepreneurs often buy life insurance that will pay partners and others what
they need to keep the business going.
28. INSURANCE COVERAGE FOR HOME-BASED
BUSINESSES:
• Homeowner’s policies usually don’t
have adequate protection for a home-
based business
• Have limits, for more coverage, they
may need to add an endorsement or
ride to the homeowner’s policy.
• A typical homeowners policy usually
only covers damages up to $2,500 on
the premises of the home-based
business, and $250.00 off the
premises.
• In addition your homeowners policy
won’t typically cover liability arising
from your home business, for example
if a delivery person slips and falls
when delivering a package.
29. THE RISK OF DAMAGING THE ENVIRONMENT
• Risk management goes beyond the protection of individuals, business, non-
profit organizations from known risks.
• The evaluation of worldwide risks with many unknowns, such as climate
change.
• Also means prioritizing these risks so that international funds can be spent
where they can do the most good.
• These risks are the concerns of businesses and governments throughout the
world, with the help of the international scientific community
30. WORKS CITED
• Identity Theft. Cheap Insurance. 5 Apr. 2011. DWI Lawyer. 06 Dec. 2011
<http://www.google.com/imgres?q=theft>.
• Roberts, Armstrong H. 1950s Man Mailman Tripping Falling In Front Of A Suburban Brick
House Accident. 10 June 1953. Corbis Images. 2002. Corbis Corporation. 06 Dec.
2011 <http://www.corbisimages.com/stock-photo/rights-managed/42-
20041922/1950s-man-mailman-tripping-falling-in-front>.
Notas do Editor
Many retail stores use mirrors, video cameras, and other devices to prevent shoplifting. Water sprinklers and smoke detectors minimize fire loss. Most industrial machines have safety devices to protect workers' fingers, eyes, and so on.
