GROUP 4BONUS CHAPTER C MANAGING RISK Robert Rhyne Blake Copeland Tony Puglisi Brent Moore Kevin Partin
UNDERSTANDING BUSINESS RISK GOAL 1• Understand what risk you face• (ERM) Enterprise Risk Management Program1. What risk the program manages2. What processes technologies and investment are required3. How management efforts will be coordinated.
MANAGING RISK GOAL 2• Risk- is the chance of loss, the degree of probability of loss, and the amount of possible loss.• Two kinds of risk: • Speculative risk: a chance of profit or loss • Pure risk: is the threat of loss with no chance for profit. Pure risk is mostly concerned by businesspeople because it threatens the very existence of some firms. Once identified firms have several options: 1.Reduce the risk 2.Avoid the risk 3.Self-insure against the risk 4.Buy insurance against the risk
REDUCING RISK GOAL 2• Firms can reduce risk by establishing loss prevention programs.• Retail Stores use mirrors, video cameras, and other devices to prevent shoplifting.• Tyson Foods killed and buried some 15,000 hens in northwestern Arkansas because the government suspected they had been exposed to bird flu.• Employees can reduce risk as well.• High insurance rates have forced some firms to go beyond just preventing risks to avoid them, in extreme cases by going out of business.
AVOIDING RISK GOAL 2• Its impossible to avoid every single risk due to there always being chances of fires, theft, accident, or injury.• Lawsuit threats have drive drug companies to stop making vaccines, and some workers refuse to work at hazardous locations.• Losing members that do not have liability coverage.• Companies have been cutting investments to avoid chances of financial losses.
SELF INSURANCE GOAL 2• Self insurance is setting aside a calculated amount of money to account for future potential losses• It is necessary to be able to price or rate the risk so that the proper amount of coverage can be retained.• Not used for catastrophic risks, as the loss would be too high• Can be cheaper than commercial insurance• Full self insurance is rare as the best coverage comes from a combination of self insurance and commercial insurance. Usually the commercial insurance is used to pay losses beyond the coverage of the self insurance.
BUYING INSURANCE COVERAGE GOAL 2• Insurance is a form of Risk Management used to hedge against the risk of a contingent, uncertain loss.• Coverage should be adequate to cover any and all potential losses.• Types of Insurance Include: – General Liability • Covers accidents, injuries and claims of negligence. – Product Liability • Covers liability due to defective products – Professional Liability Protects against malpractice and other liability attributed to services performed. – Commercial Property Insurance • Covers everything related to the loss and damage of company property.
INSURANCE POLICIES• Insurance Policy- Written contract between the insured and an insurance company that promises to pay for all or part of a loss by the insured• Premium- cost of the policy to the insured• Claim- a statement of loss sent to insurance company to request payment
LAW OF LARGE NUMBERS-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-Helps insurance companies determine appropriate premiums for each policy it issues against that loss
RULE OF INDEMNITY• A i nsur ed per son cannot col l ect m e t han t he n or act ual l oss f r om an i nsur abl e r i sk• A per son cannot pur chase t w i nsur ance pol i ci es, o even f r om t w separ at e com o pani es, and col l ect f r om bot h f or t he sam l oss e
TYPES OF INSURANCE COMPANIES• Stock Insurance Company- Ownedby stockholders• Mutual Insurance Company- Ownedby policyholders • Any excess funds go to policyholders in the form of dividends or premium deductions
INSURANCE COVERAGE FOR VARIOUS KINDS OF RISK GOAL 4• There are many types of insurance to cover losses• Health Insurance Business’s offer health insurance to cover physician fees,exams, and prescriptions• Health Maintenance Organizations (HMOs) Offers a full range of health benefits Contracted to particular doctors, hospitals, and healthcare systems Members must use providers on the approves list.
• Preferred Provider Organizations (PPOs) Also contract with hospitals and physicians. Members pay part of the bill. Can use outside providers but pay a deductiblebefore PPO makes any extra payment on the bill Can cost 80% less than some individual coverageplans.• Health Savings Accounts (HSAs) Tax-deferred savings accounts linked to low cost, high deductible health polices Goal is to have employer take current high cost related to health cost and deposit that into a health savings account.
DISABILITY INSURANCE AND WORKERS COMPENSATION GOAL 4 • Disability insurance Replaces part of your normal income (usually 50 to 70%) Usually out of work for 60 days before you start to collect. one should purchase if not already offered by employer. Payments and premiums can vary according toage, occupation, and income. • Workers Compensation Guarantees payment of wages, medical care, rehab forinjury from work. Employers are required to provide this. pays benefits for survivors as result of death from workinjury. Varies from company to company based of size, safetyrecord, payroll, and type of hazard workers face on the job.
• Liability insurance Covers the loses of businesses or persons after being sued. Also called Malpractice insurance. Covers business, lawyers, doctors, in negligence cases Covers Manufactures in cases involving faulty products• Life insurance for Businesses Protect those left behind incase of death, so that business can continue.