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business risks and insurance
This document provides an overview of business risks and insurance. It defines business and different types of business risks, including pure risk, economic risk, human risk, and natural risk. It discusses risks specific to small, medium, and large businesses. The document also outlines different causes of business risk such as natural causes, human causes, economic causes, physical causes, and political causes. It then discusses various methods of risk protection like reducing or eliminating risk, efficient management, reserve cash, and shifting of risks. The document provides definitions of insurance and its principles, including utmost good faith, indemnity, proximate cause, mitigation of loss, and arbitration. It also discusses different types of insurance policies like life insurance, fire insurance
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business risks and insurance
- 2. BUSINESS RISKS AND INSURANCE BY ANAMRAFIQUE, NAILA RAFIQUE, FAIZA JAMIL, NOOR-UL-AIN, IRAM SHAHZADI AND UZMA BATOOL
- 3. Definition of business Accordingto 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 BUSINESSRISKS • Insurable vs. uninsurable risk • Controllable vs. uncontrollable risk
- 7. Pure risk Economic risk Humanrisk Natural risk OTHER TYPES OF RISK
- 8. PURE RISK o Threatof loss with no opportunity for gain Examples Employee theft Burglary Bad checks Accidents Involving Customers or employees
- 9. Economic risk • Occurswhen there is likelihood of financial loss • May result from changes in overall business conditions
- 10. EXAMPLE • If acompetitor offers more features, other businesses need to change their product or face losses
- 11. Human risk • Riskof 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 • Thepossibility 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 Smallscale businesses Medium scale businesses Large scale businesses
- 16. Number of peoplein small businesses are less than 100 Annual revenue is less than $ 7 million
- 17. Common risks insmall 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 • Baddebts 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 Intellectualproperty Theft Increased competition
- 21. Common risks • Operationalrisk • 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)
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- 24. Natural causesare 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 iscaused 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 usedin business may depreciate in value Technical changes and mechanical defects also result in business risks PHYSICAL CAUSES
- 28. Some politicalevents 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 RiskProtection Reducing or eliminating the risk Efficient management A reserve cash Shifting of risks
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- 35. Contract betweentwo parties Process of collecting money Compensation to losses
- 36. According to OxfordDictionary, “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 OFDEFINITION An undertaking Safeguard
- 38. Benefits of insuranceto individuals Peace of mind Aversion of risk Protects mortgaged properties Provides self dependency Tool of savings Tool of investment
- 39. • Reduce reserverequirements • Capital freed for investment • Reduction of uncertainty • Loss control activities • Business and social stability
- 40. Benefits of insuranceto 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 ofindemnity • 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 insuredperson 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 partieshave right to cancel or terminate the insurance before its expiry date • Their relationship come to an end on the date of cancellation of policy
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- 50. We candefine 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 insuranceis 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 insuranceis 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 provideinsurance 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
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- 58. Economic backwardness • Lackof resources • Limited scope of business activities • Lack of professional management
- 59. Lack ofsavings Basic needs of life
- 60. Illiterate majority Ignorance Views of people
- 61. Varying opinionsof religious scholars Deep attachment to scholars People considered it to be a form of Riba
- 62. No foresightness Legacy of people
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- 64. Our visit O To statelife insurance company limited
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