Every day you face risks. Risk can be thought of as the possibility of exposure to injury or incurring a loss. Almost every decision we make involves some amount of risk. Some risks are financial, while others may involve risks to your health or your future. All of us face some level of risk every day. Loss of a cell phone, damage in a car accident, or theft of a tablet computer are all examples of risk we might face. As we deal with risk we have four choices: avoid risk, reduce risk, ignore risk, or transfer risk. Planning for risks means understanding your options and the results of those options.
Risk is the likelihood or potential that a certain course of action will result in a loss of some sort. Risk has three components:
Risk is all around us. Risk management is identifying risk, assessing the impact on your business if a security incident occurs, and making the right financial decision about how to deal with the results of your assessment. It also includes the implementation of a program to continually measure and assess the effectiveness of existing safeguards in protecting your critical assets. Managing risk is not a one-time activity; it’s an ongoing process.
An economic risk is a risk that can result in financial loss. There are 3 categories of economic risk:
A non-economic risk may result in inconvenience or embarrassment but does not have any financial impact.
A pure risk is a risk that presents the chance of loss but no opportunity for gain. An example of a pure risk is the storms that pass with no harm to a business. Although no damage occurred because of the storms, there was the potential for damage. A heavy ice storm, like the storms we had in January 2014, that causes the business to close for a day or two will reduce sales. Wind and rain damage to a building will add to expenses because of the cost of repairs.
Speculative risks offer the chance either to gain or to lose. Suppose you invest your money in a new business. If it is successful, you will make a nice profit. On the other hand, if it fails you can lose all of the money you invested.
A risk that you can reduce or eliminate by actions you take is a controllable risk. For example, to prevent loss from theft, businesses install security systems, hire guards, and train employees to be alert for possible problems.
Uncontrollable risk cannot be reduced by your actions. A sudden hailstorm or early freeze can affect a farmer’s crops and little can be done to reduce the losses suffered.
Directions: Define and explain basic insurance vocabulary concepts. Place your definitions in the textbox in itsLearning. Do not attach a separate document. Be sure you proofread.
Businesses deal with risk in one or more of four ways: avoid, transfer, insure against, or assume the risk. In some cases, businesses can avoid the risk. With thought and planning you might be able to avoid the risk. Decision makers need to be aware of risks that can threaten a decision. They must determine the costs and possible rewards of their decisions. They must estimate the size of losses if anticipated problems occur. If the likelihood of risk or the amount of loss is too great, they may make the decision to avoid the action. This will ensure that there is no loss.
A business may transfer the risk. If a business is not prepared to assume the risk, they may choose to transfer it to another party who then assumes the risk.
If a business faces the same type of risk also faced by others and the size of losses can be reasonably predicted, it is possible to purchase insurance. Insurance is a practice or arrangement by which a company or government agency provides a guarantee of compensation for specified loss, damage, illness, or death in return for payment of a premium.
Some companies decide they are willing to assume the risk. That means that if they suffer a loss, they will deal with the result. Typically, if a business decides to assume a risk, it means that the result of the damage will not have serious negative consequences on the business. They believe they can better manage the risk and believe they can make a profit or obtain another benefit for their business.
Both consumers and business can buy insurance to cover almost any kind of economic loss. Violinists can insurance their fingers. Professional athletes can insure against injuries. Writers can insure their manuscripts. Businesses can insure against the loss of rent from property damaged by fire, injury to consumers resulting from the use of the company’s products, or theft by employees. Businesses purchase insurance for:
Businesses generally provide health insurance, disability insurance, and life insurance. Health insurance is protection against the high costs of individual health care. Disability insurance provides payments to employees who are not able to work for an extended period due to serious illness or injury. Life insurance pays the amount of the insurance policy upon the death of the individual.
Health & Life Insurance
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Two types of property business insure are commercial property and vehicles. Commercial property insurance covers property losses resulting from fire, storm, accidents, theft, and vandalism. Special policies can also provide coverage for flood damage and earthquakes. Vehicle insurance covers the automobiles, trucks, and other business vehicles. Damage to the vehicles and occupants resulting from accidents are covered. Automobile insurance pays the costs of damage to the property of others. It also pays medical costs for those injured if people driving the company’s vehicles cause an accident.
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Business Operations Insurance provides compensation for ongoing business expenses that occur if a business has a temporary shutdown due to a fire, flood, or other major problem. Employees’ actions or business operations may result in accidents, injuries, property damage, or other losses. Liability Insurance provides coverage for claims by others based on damages suffered because of business operations, employees, or products. A customer may be injured while visiting the business. The use of products may result in physical injury while visiting the business. The use of a product may result in physical injury, illness, or even death. An employee may be dishonest or take action that injures another person. The business may be held financially liable for any of those situations.
Directions: Downoad the Health & Life Insurance Outline and use the Health & Life Insurance presentation to completed the slotted notes. Select the correct answer in the Health & Life Insurance Answer Document in itsLearning.
Directions: Do a little research of the Affordable Health Care Act so you are familiar with it. Now talk to your parents about the Affordable Health Care Act. Prepare a summary of approximately 150 words of how health care has changed with the new Affordable Health Care Act. Post your summary to the textbox in itsLearing. Do not submit a separate document. Be sure you proofread.
Directions: Complete the Health Insurance Comparison Activity. Fill in the Word document (from itsLearning or the .pdf linked) and upload or print and take a readable picture of the completed document. Submit in itsLearning.
Directions: Complete the worksheet in itsLearning by typing in the worksheet or by printing, writing, and scanning/taking readable picture of the worksheet.
Directions: Complete the worksheet in itsLearning. Either type in the blanks and submit or print the worksheet, write on it, and scan or take readable picture.
Directions: Download the Property Insurance Outline and use the Property Insurance presentation to complete the slotted notes. Select the correct answer in the Property Insurance Answer Document in itsLearning.
Businesses cannot insure many of the risks they face. Some are too expensive to insure. The cost of some risks, such as medical malpractice or product liability, are so high that a business cannot afford the cost of insurance projection. In that case, the business must determine other ways to deal with those risks.
Economic conditions affect risk. Research and watching economic trends and changes is imperative to dealing with uninsurable risks. A downturn in the economy can quickly reduce sales and profits. Businesses must be prepared to respond to improvements or declines in economic conditions. You cannot insurance against consumer demand. If consumer tastes change, a business may end up with products in inventory that they are unable to sell at a profit. You cannot insure against the actions of a competitor. Because businesses function in a competitive environment, the actions of competitors can affect success (i.e. major marketing blitz, new competitor).
Technology changes affect risk. The cost of putting new technology in place is usually high, but if the business doesn't adopt the technology, it may lose sales. What happened to traditional businesses when companies started to use the Internet? Think about the digital cameras changed the film industry. It radically changed how people took and processed/printed (if they even do) pictures. If a company is not prepared to accept debit or credit cards as a form of payment, will customers take their business elsewhere?
Local factors affect risk. The laws, regulations, taxes, and infrastructure (typically refers to the assets that support an economy, such as roads, water supply, wastewater, stormwater, power supply, flood management, recreational, and other assets. In the past, these assets have typically been owned and managed by local or central government.) of a local community can have an influence on the operations of a business. The highway that runs in front of a fast-food business closes for a month for repair would impact the fast-food business negatively. The utility company serving the city has a 5% rate increase for the cost of electricity. The county zoning board rejects a business’ request to expand its production facility. These are local examples of risk that cannot be insured against.
Business Operations are affected by risk. The day-to-day operations can have a major impact on its success or failure. A manager or even an owner who doesn't know what they are doing can cause a business to fail. There is no insurance for lack of knowledge, skill or preparation.
Not every risk is insurable! Everyone involved in the business should be aware of the many uninsurable risks. All employees should be watchful for changes that can lead to problems and implement measures to gather information and spot possible problems. Managers should:
Directions: Read the scenarios in itsLearning. Chose 2 to respond to in complete sentences. Prepare your response in the textbox of the assignment. Do not attach a separate document. Proofread your document and label according to the scenarios selected.
As an international business manager, would you be willing to ship automobiles to a company in another country before receiving payment? Would you agree to take a country’s currency for payment instead of US dollars? These are examples of risks faced by every organization involved in international business. To reduce international business risks, management experts advise the use of four strategies:
Export Credit insurance protects against non-payment and is an important tool in credit management. It means you can sell more goods or services on credit terms and increase your borrowing power. However, it should not replace good credit management practices. Many buyers abroad ask sellers for bonds or bank guarantees in case the seller doesn't keep to their side of the contract on quality or performance after receiving advance payments. Businesses can purchase bond insurance. Tender Exchange Rate Indemnity will protect you against adverse exchange rate movements when tendering for contracts in a foreign currency. If the currency weakens between submission of your firm tendering and winning the contract, you could lose a lot of money.
Directions: Read the document Risks Faced by Businesses in itsLearning.
More than 2.5 million people in the United States work in the insurance industry. This work is challenging yet satisfying. The insurance industry is thriving as our population ages, wealth grows, and opportunities for risk management increase. Working in insurance involves helping individuals and business manage risk to protect themselves from catastrophic losses and to anticipate potential risk problems. This area is both personally and financially rewarding. You will help clients understand insurance needs, explain options to them, and help them purchase appropriate insurance policies or explore alternative ways to finance and minimize risk. Insurance careers fall into three major categories: sales, underwriting, and claims.
Possible careers include:
Directions: Pick one of the careers listed above and do a little research. Find out what education, experience, or training you should obtain so you are prepared to serve in that position. Prepare a 150-200 word essay with your findings. Submit your essay to the itsLearning textbox. Do not submit a separate document. Be sure to proofread and use complete sentences.
Complete the Risk Management worksheet in itsLearning. You may do the worksheet as many times as you wish. It will provide a great review for the unit assessment.
You should also review the Risk Management Vocabulary Flash Cards
Flash Card Deck created by sarush with ExamTime
If you are having problems viewing this page, opening videos, or accessing the URLs, the direct links are posted below. All assignments are submitted in itsLearning. If you have having problems, contact Mrs. Rush through the itsLearning email client.
Health & Life Insurance presentation: http://www.mrsrush.net/risk/hlinsurance.pdf
Health & Life Insurance Outline: http://www.mrsrush.net/risk/hloutline.pdf
Health Insurance Comparison Activity: http://www.mrsrush.net/risk/hica.pdf
Vehicle Insurance presentation: http://www.mrsrush.net/risk/vinsurance.pdf
Property Insurance presentation: http://www.mrsrush.net/risk/pinsurance.pdf
Property Insurance Outline: http://www.mrsrush.net/risk/pioutline.pdf
Risk Management Transcript: http://www.mrsrush.net/risk/index.pdf