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Bus106 wk13 risk management


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BUS106 wk13 risk management - from UNDERSTANDING CANADIAN BUSINESS, 7th Canadian Edition (custom publication for Seneca) ; published by McGraw-Hill

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Bus106 wk13 risk management

  1. 1. Week 13, Appendix BRisk Management
  2. 2. Agenda Take up Quiz B Risk Management exercises
  3. 3. Next Class Chapters 1-11 Prepare answers Appendix B to review questions as A+ posted on A+ My.Seneca A+ A+ A+ A+
  4. 4. Learning Objectives Discuss the environmental Explain the four changes that ways of have made risk managing risk management more important Distinguish between Explain the rule insurable and of indemnity uninsurable risk
  5. 5. Learning Objectives Explain why businesses Discuss the various must carry workers’ types of insurance that compensation businesses may buy insurance Tell others why businesses cannot manage environmental damage on their own
  6. 6. Risk: The chance of loss, the degree of probability of loss, and theamount of possible loss.
  7. 7. Change and Risk Weather, terrorism, H1N1, US economy…
  8. 8. Speculative Risk: Chance of either profit or loss
  9. 9. Pure Risk: The threat of loss with no change for profit Fire, accident or loss Reduce the risk Options Avoid the risk Self-insure against the risk Buy insurance against the riskImage source:
  10. 10. Reducing Risk – internal controls and loss-prevention programs Fire drills Health education Safety inspections Equipment maintenance Accident prevention programs
  11. 11. Reducing Risk – internal controls and loss-prevention programsSecurity systemsWater sprinklers/smokedetectorsSafety devicesProduct recallsSeat belts; ear plugs
  12. 12. Avoiding Risk – don’t accept hazardous jobs; outsource riskyfunctions Shipping Vaccines Hazardous job sites Working in companies that do “risky things”
  13. 13. Self-Insuring – setting aside money to cover routine claims andbuying only “catastrophe” policies to cover big losses Most appropriate when a firm has widely distributed facilities. Many similar organizations (like colleges) self-insure as a group Firms where a major fire or earthquake could destroy the entire operation, usually turn to insurance to cover the risk.
  14. 14. Covering Financial Risk through Insurance – organizations spend10% of GDP on insurance premiums!
  15. 15. Uninsurable Risks – a risk that no insurance company will cover Market risks (price change, style change, new products that make your products obsolete) Political risks (losses from war or government restrictions on trade) Personal risks (job loss) Operation risks (strikes or inefficient machinery)
  16. 16. See Figure B.1 Public Insurance Type of Insurance What it Does Canadian Public Health Care Employment Insurance Old Age Security / Canada Pension Plan Canada Deposit Insurance Corporation (CDIC) Provincial Auto Insurance (MAN, SASK, BC)
  17. 17. Insurable Risks – a risk that the typical insurance company willcover Guidelines:• Policyholder must have insurable interest – must be the one at risk to suffer a loss (i.e. can’t buy fire insurance on your neighbour’s house)• Loss should be measurable• Chance of loss should be measurable• Loss should be accidental• Risk should be dispersed; spread among different geographical areas• Insurance company can set standards for accepting this risk
  18. 18. Insurance Policies – a written contract between the insured and theinsurance company that promises to pay for all of part of a loss Premium – fee charged by an insurance company for an insurance policy Law of Large Numbers – if a large number of people or organizations are exposed to the same risk, a predictable number of losses will occur during a given period of time
  19. 19. Rule of Indemnity – an insured person or organization cannotcollect more than the actual loss from an insurable risk cannot gain from risk management can only minimize losses
  20. 20. Types of Insurance Companies Mutual insurance Stock insurance company company • owned by stockholders; • owned by policyholders - just like any investor- non-profit organization – owned company excess funds go to policyholders in the form of dividends or premium reductions
  21. 21. Health Insurance Universal health care (see Figure B.1) Dental Extended health care Survivor’s benefits (death benefits or pension) Worldwide travel benefits Income continuance for long-term or short-term disability Pensions – monthly income for a retired employee
  22. 22. Disability Insurance Replaces part of your income (50-70%) if you become disabled - unable to work Waiting period before you are eligible Recommended because the chances of becoming disabled by disease or accident when young are much higher than the chance of dying Premiums vary according to age, occupation, and income
  23. 23. Workplace Safety and InsuranceProvincial workplace safety andinsurance boards guaranteepayment of wages, medical care,and rehabilitation services (eg.retraining) for employers whoare injured on the jobInsurance also provides benefitsto survivors of workers who dieas a result of work-relatedinjuriesCost to insure depends oncompany safety record and typesof hazards faced by workers
  24. 24. Liability Insurance Professional Product • covers people who are • covers liability arising found liable for out of products sold professional negligence Personal Premises • covers liability of any • covers claims resulting individual through a from an accident negligent act either at occurring either at a work or home place of work or personal residence
  25. 25. See Figure B.2 – Types of Insurance
  26. 26. Key Employee InsuranceLoss of key employeeis a significant risk forbusinessesCover executives withterm insurance
  27. 27. Insurance Coverage for Home-Based Businesses Home insurance might not fully cover home- based business equipment (eg. may be a max of $2,500) Can add a “rider” or endorsement to homeowner’s insurance to increase coverage If clients visit or you receive deliveries, might need home-office insurance Best to check with an insurance agentImage source:
  28. 28. Risk of Damaging the EnvironmentNuclear power plantexplosions likeChernobylAcid rain due to coal-fired power plantsGlobal warming