Business Risks and Mitigation

• Shops and factories store articles or install machines
• Trains, trucks, and ships carry goods from one place to another

Business Risks

• Involves the risk of loss
• Storing goods has risk of damage before sold
• Damage can result from fire, natural disaster, riot, or theft
• Machines in factories face risk of breakdown costing heavy losses
• Goods face damage or destruction by accident during transportation
• Business owners are at risk of disease or accidents causing family loss

Managing Risks

• Timely precautions can prevent certain losses
• Some losses and damages are the businessman's burden, or shared with others
• Possibility of loss can be divided into uncertainties and risks
• Uncertainties are unforeseen events
• Risks can be anticipated from past experiences
• The chance of fire or theft depends on precautions and preparedness

Mitigation

• Adequate preparation is needed to minimize the effects of the risks when they occur
• Everyone should think of future needs if they are unable to work due to old age or illness
• Illness may occur more often with age
• Death may happen when there is a family to care for

Transportation Risks

• Goods transported from place to place may face from accidents that can cause damage or loss
• Trains derail, bridges collapse, or planes crash due to engine failure
• Trucks can be looted on route to another city
• Ships can be damaged when loading or unloading at ports
• Insurance allows the sharing of these damages or losses

Business Objective

• Earning a profit should be the most important objective of every business
• Lack of profit reduces capital
• Businesses should aim to be efficient
• Declining sales of goods may be a warning sign
• If reasons for lower sales are identified, remedies can be applied
• Losses may occur from market shift, loss of income, or accidental fire
• Workers striking may cause losses
• Risks are the possibility of loss or damage from circumstances a business has little or no control over

Types of Risk

• Speculative Risk involves business judgment based on speculation such as change in fashion or government policy
• Pure Risk means the chance of loss is predictable
• Property Risk involves the loss of property
• Personnel Risk involves life or health of human beings
• Financial Risk involves financial transactions of the business
• Marketing Risk involves the marketing of goods

Insurance Basics

• Insurance shifts the risk of loss or damage to another party/insurer in exchange for a premium
• The insured's risk is transferred to the insurer which is generally an organization (Insurance Company)
• The insurer shares the loss or damage
• An insurance contract involves the insurer paying the insured a fixed amount for a fixed premium
• Payment occurs upon an event, such as reaching a certain age or death
• It can also compensate for actual loss from causes mentioned in the contract

Insurance as Cooperation

• All insured parties who are subject to a risk pay a premium
• If there is loss or damage it is then compensated to the insured
• A large number of parties exposed to risk, but only a few suffer loss in a period
• The insurer (company) spreads the actual losses suffered by a few insured parties among all insured parties

Importance of Insurance

• Insurance spreads the effects of loss or damage; giving the insured party sense of security
• Premium periodically creates assurance of fixed amount upon retirement, or security for family in the event of death
• Insuring risk of loss is also beneficial for businessmen
• Insurance plays an important role with large-scale production and distribution both nationally and internationally
• Token amounts assure compensation against a loss in the future
• Trading and industrial enterprises are aided with huge investments in properties, plants, raw materials, etc
• Accumulation of savings enables the the funds to be invested in securities issued by big companies and the Government
• Life insurance encourages individuals to save a part of their current income to cover the risks of old age and death
• Insurance employs people directly at offices nationwide, while some earn money as insurance agents

Insurance Types

• Life Insurance and Fire Insurance are the basic forms
• There is also Marine Insurance and insurances for burglary and motor vehicles
• LIC was recently the only organizations in India engaged in this work, it now has private sector sectors assisting

Life Insurance

• Undertakes sum payments on death or after a number of years of the insured
• Can be paid in a lump sum or periodically
• Is referred to as life assurance since it has certain risks to happen
• Involves payment of a fixed sum on a fixed date or on the happening of an event
• Written contract is known as life insurance policy
• Group insurance can be for all employees, developing loyalty, and security for raising loans
• Whole-life policies run for the whole lif, with the sum assured payable to heirs upon death
• Endowment policies run for a limited period or to a certain age; sum becomes due on the date or death

Fire Insurance

• Insurer covers compensation for loss or damage suffered by defined matter being damaged or destroyed by fire
• The claim depends on actual fire, and accidental not intentional fire
• The cause of the fire is immaterial, there is a principle of indemnity
• Involves compensating as much as subject to the maximum policy
• A profit cannot be made from taking fire insurance, only an extent of the loss

Marine Insurance

• An agreement by the insurer agrees to protect the owner of a ship or cargo against sea risk
• Insurance includes ship, cargo, and freight
• Marine insurance covers the loss of cargo by storm (aka cargo insurance)
• Ship owners can insure it againist loss on account of perils
• Subject of ship insurance is known as hull insurance, and shipping companies can insure risk of loss of freight
• Marine insurance contracts are contracts of indemnity

Marine Insurance Types

• Time Policy insures the subject matter for a specified period of time (usually one year)
• Voyage Policy is meant for a particular voyage without time consideration
• Mixed Policy insures the subject matter on a voyage for a specified time

Insurance Differences

• The amount insured/actual loss is compensated for Fire Insurance and the purchase price is compensated for Marine
• Compesation is specific amount in Life Insurance
• Fire and Life insurance policy can not be assigned while life can be
• Object of Fire is to cover fires, marine covers the sea and life invests
• Unlike the others Life insurance can be surrendered

Other Types of Insurance

• Motor vehicles Insurance covers vehicles-passenger cars, vans, commercial vehicles, motor cycles, scooters, etc.,
• Risks that can occur include accidents, theft, third-part liabililty
• Third party risk insurance is compulsory under law

Other Insurances

• Burglary Insurance covers losses from robbery and theft by house break ins
• Fidelity Insurance protects against losses from dishonesty or embezzlement
• Personal accident and sickness Insurance policies can be taken out against death during travel
• Liability Insurance covers risk of liability for injury or death, which can involve employee safety
• Property Insurance covers a wide variety of items from goods in transit or in store to building or contents

Principles of Insurance

• Honesty and trust must occur
• Withholding invalidates the contract
• Insured must be trustworthy, exclaiming any life-threatening information

Financial interest

• Financial interest depends
• Must have it at the time of taking the policy and fire insurance must exist
• The insurer will only pay the damaged amount
• In insured property there must be a personal loss
• Insurance can not cause profits

Other Principles

• The same subjects can be insured with other insurers
• Insurance protects all amounts even from separate insurers
• Subrogation means if the insurer has compensated for damage, they should reserve all the rights to the matter of the products involved for compensation