business risk and insurance

2. BUSINESS RISKS AND
INSURANCE
BY
ANAM RAFIQUE, NAILA RAFIQUE,
FAIZA JAMIL, NOOR-UL-AIN, IRAM SHAHZADI
AND
UZMA BATOOL

3. Definition of business
According to James Stephenson,
“Every human activity which is
engaged in for the sake of
earning profit may be called
business”.

4. • Risk – the possibility of loss
• or injury
• Business risk – risk of loss
that is naturally incurred by
owing and operating a
business

5. TYPES OF BUSINESS RISKS
• Insurable vs.
uninsurable risk
• Controllable vs.
uncontrollable risk

7. Pure risk
Economic risk
Human risk
Natural risk
OTHER TYPES OF RISK

8. PURE RISK
o Threat of loss with no opportunity for gain
Examples
Employee theft
Burglary
Bad checks
Accidents
Involving Customers or employees

9. Economic risk
• Occurs when there is likelihood of
financial loss
• May result from changes in
overall business conditions

10. EXAMPLE
• If a competitor offers more features, other
businesses need to change their product or
face losses

11. Human risk
• Risk of harm caused by human
mistakes, dishonesty or other factors
attributed to people

12. EXAMPLES
• Customer dishonesty
• Fraudulent payment
• Theft incompetence of employees

13. Natural risk
• The possibility of a catastrophe caused by
natural elements that can cause damage of
loss or property

14. EXAMPLE
• Floods
• Tornados
• Hurricanes
• Fires
• Lightning
• Droughts
• Earthquakes etc.

15. Types of businesses
Small scale
businesses
Medium scale
businesses
Large scale
businesses

16. Number of people in small businesses are
less than 100
Annual revenue is less than $ 7 million

17. Common risks in small businesses
• Breakdown of machinery and equipment
• High employees turnover or loss of key
staff members especially if they have
unique skills
• Security of data and intellectual
property
• theft

18. Common risks
• Bad debts creating customers
• Increase in competition
• Negative cash flow
• Natural disasters such as fires and
storms

19. Medium scale business
• Number of people in such businesses is
from 100 to 500
• Annual revenue is between $7 million to
$35 million dollar(estimate)

20. COMMON RISKS
 Intellectual property
 Theft
 Increased competition

21. Common risks
• Operational risk
• Political risk
• Country risk
• Technological risk
• Environmental risk
• Economic risk
• Financial risk
• Terrorism risk

22. Large scale businesses
• Number of people in such business organization is more than
500
• Annual revenue is more than $35 million (estimate)

23. Flood Earthquake

24.  Natural causes are beyond the control of humans
 Natural disasters can lead to huge losses in business
 Which mainly occur due to natural calamities such as
earthquakes and flood etc.
NATURAL CAUSES

25.  Strikes, dishonesty, carelessness are examples of human
causes of business risk
 Dishonesty of employees, misappropriation of cash and theft
of goods may also become a cause of loss for business
HUMAN CAUSES

26.  Which is caused mainly due to fluctuation in the market
prices of various commodities
 Inflation and unemployment are examples of economic causes
of business risk
 Trade cycle and other unforeseen changes in the economy
may also create business risks
ECONOMIC CAUSES

27.  Assets used in business may depreciate in value
 Technical changes and mechanical defects also result in
business risks
PHYSICAL CAUSES

28.  Some political events can change the business scenario
 A major policy change by government can change the
business environment
 Changes in the taxation policies create uncertainty and loss
 political disturbances such as fall of government and civil
war etc. may lead to heavy loss in business
POLITICAL CAUSES

29. Methods Of Risk Protection
Reducing or
eliminating
the risk
Efficient
management
A reserve
cash
Shifting of
risks

30. Reducing or eliminating risk

31. Efficient management

32. A reserve cash

33. Shifting of risk

35.  Contract between two parties
 Process of collecting money
 Compensation to losses

36. According to Oxford Dictionary,
“Insurance means undertaking, by a
company, society or the state to
provide safeguard against
loss, provision against
sickness, death, etc. in return for
regular payments.”

37. MAIN POINTS OF DEFINITION
 An undertaking
 Safeguard

38. Benefits of insurance to
individuals
Peace of mind
Aversion of risk
Protects mortgaged properties
Provides self dependency
Tool of savings
Tool of investment

39. • Reduce reserve requirements
• Capital freed for investment
• Reduction of uncertainty
• Loss control activities
• Business and social stability

40. Benefits of insurance to society
 Protects wealth of country
 Helps in economic growth
 Control inflation

41. PRINCIPLES OF INSURANCE
• Utmost good faith
• The principle of indemnity
• Proximate cause
• Mitigation of loss
• Arbitration

42. Utmost good faith
• Contract between insured and insurer
• Both parties should disclose all facts to each
other
• A false information or non disclosure of
material facts makes the contract invalid

43. The principle of indemnity
• All insurance contracts, except life insurance
are the contract for indemnity
• The assured shall be compensated in case of
loss only
• The insured is not allowed to receive a higher
amount than the amount of loss

44. Proximate cause
An insured person can recover the only when it is
caused by any of the risk insured against. e.g.
cargo of wheat and rats

45. Mitigation of loss
• Insured should take all reasonable steps
to minimize the amount of loss
• He can recover the same from insurer if
he suffer loss in doing so.
• If he does not take care, his claim might
be lost

46. Cancellation
• Both parties have right to cancel or terminate
the insurance before its expiry date
• Their relationship come to an end on the date
of cancellation of policy

49. Life insurance

50.  We can define life insurance as a contract in
which insured person pay regular premium to
the insurer i.e. insurance company
 On the death of the insured or at the maturity
period, the insurance company pay the
compensation or the matured sum respectively

52.  This insurance is done by
businesses for safety delivery of
goods, while transferring goods
from one place to another by sea
way, land way, air way

54.  Fire insurance is an insurance that cover
property such as home, shop and other fixed
asset protection against fire, burn etc.
 It also cover distraction of property due to fire

55. Which companies provide insurance in
Pakistan
• Adamjee insurance company limited(Karachi)
• Alpha insurance company limited (Karachi)
• Fins insurance company limited
• The united insurance company of Pakistan ltd
• Asia insurance company limited
• Premier insurance company limited
• Reliance insurance company limited
• Universal insurance company limited

57. Economic
Backwardness
Poverty
Illiteracy
Religious
beliefs
Trend of
Insurance

58. Economic backwardness
• Lack of resources
• Limited scope of business activities
• Lack of professional management

59.  Lack of savings
 Basic needs of life

60.  Illiterate majority
 Ignorance
 Views of people

61.  Varying opinions of religious scholars
 Deep attachment to scholars
 People considered it to be a form of Riba

62.  No fore sightness
 Legacy of people

63. Conclusion

64. Our visit
O To
state life insurance company limited

65. ANY QUESTION