business risks and insurance


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business risk and insurance

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business risks and insurance

  2. 2. DEFINITION OF BUSINESS According to James Stephenson, “Every human activity which is engaged in for the sake of earning profit may be called business”.
  3. 3. • Risk – the possibility of loss or injury • Business risk – risk of loss that is naturally incurred by owing and operating a business
  4. 4. • Insurable vs. uninsurable risk • Controllable vs. uncontrollable risk
  5. 5. Insurable risk  Meets an insurance company’s criteria for coverage. For example,  Property insurance  Vehicle insurance Uninsurable risk  Unacceptable to insurance carriers because the likelihood of lose is too high. For example,  Owners of shops in flood zones might have difficulty in finding insurance
  6. 6. CONTROLLABLE UNCONTROLLABLE  Occurs when conditions can be controlled to minimize the chance of harm.  For example  Environmental damager can often be prevented.  Cannot be reduced or prevented.  For example  The risks of doing business in a global market place cannot be controlled.
  7. 7. Pure risk Economic risk Human risk Natural risk OTHER TYPES OF RISK
  8. 8. PURE RISK o Threat of loss with no opportunity for gain Examples Employee theft Burglary Bad checks Accidents Involving Customers or employees
  9. 9. Occurs when there is likelihood of financial loss May result from changes in overall business conditions
  10. 10. EXAMPLE If a competitor offers more features, other businesses need to change their product or face losses
  11. 11.  Risk of harm caused by human mistakes, dishonesty or other factors attributed to people
  12. 12. Customer dishonesty Fraudulent payment Theft incompetence of employees
  13. 13.  The possibility of a catastrophe caused by natural elements that can cause damage of loss or property Natural risk
  14. 14. EXAMPLE  Floods  Tornados  Hurricanes  Fires  Lightning  Droughts  Earthquakes etc.
  15. 15. Reducing or eliminating the risk Efficient management A reserve cash Shifting of risks
  16. 16.  There are certain risks that can be completely prevented by proper arrangements and management
  17. 17. • Refrigeration can eliminate risk of spoilage • Good labor-management relations can prevent labor unrest • Use of electronic cameras can reduce the risk of shoplifting • Industrial machines can be so designed as to prevent accidents
  18. 18. Efficient management at all levels can greatly reduce the hazards of by:  identify forms of risk giving solution of risk Efficient management
  19. 19. A RESERVE CASH Reserve cash is a planning for unexpected Planning for unexpected can save a business Reserve cash is maintain to meet emergency It saves business from financial loss
  20. 20.  Risk is shifted when another person undertakes to bear the loss • Shifting of risks to other agencies which specialize in bearing in bearing that risk • Insurance is the best method of handling business risk
  21. 21. Contract between two parties Process of collecting money Compensation to losses
  22. 22. 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.”
  23. 23. MAIN POINTS OF DEFINITION  An undertaking  Safeguard
  24. 24.  Peace of mind  Aversion of risk  Protects mortgaged properties  Provides self dependency  Tool of savings  Tool of investment
  25. 25. • Reduce reserve requirements • Capital freed for investment • Reduction of uncertainty • Loss control activities • Business and social stability
  26. 26. Benefits of insurance to society  Protects wealth of country  Helps in economic growth  Control inflation
  27. 27. PRINCIPLES OF INSURANCE • Utmost good faith • The principle of indemnity • Proximate cause • Mitigation of loss • Cancellation
  28. 28. 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 Utmost good faith
  29. 29. 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
  30. 30. An insured person can recover the loss only when it is caused by any of the risk insured against. Proximate cause
  31. 31. 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
  32. 32. 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 CANCELLATION
  33. 33. Life insurance  We can define life insurance as a contract in which insured person pay regular premium to the insurer i.e. insurance company
  34. 34.  On the death of the insured or at the maturity period, the insurance company pay the compensation or the matured sum respectively
  35. 35. • 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
  36. 36.  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
  37. 37. 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
  38. 38. Economic Backwardness Poverty Illiteracy Religious beliefs Trend of Insurance
  39. 39. Economic backwardness  Lack of resources  Limited scope of business activities  Lack of professional management
  40. 40. Poverty  Lack of savings  Basic needs of life
  41. 41. Illiteracy O Illiterate majority O Ignorance O Views of people
  42. 42. Varying opinions of religious scholars Deep attachment to scholars People considered it to be a form of Riba RELIGIOUS BELIEFS
  43. 43. TREND OF INSURANCE No foresightness Legacy of people
  44. 44. Our visit  To state life insurance company limited
  45. 45. ANY QUESTION