Understand risk management and insurance. 1. What is risk? ◦ Possibility of incurring a loss ...
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Objective 5.02 Understand risk management and insurance. 1
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Transcript of Understand risk management and insurance. 1. What is risk? ◦ Possibility of incurring a loss ...
Objective 5.02Understand risk management and
insurance.
1
What is risk?◦Possibility of incurring a loss
What is risk management?◦Process of decreasing risk to lowest level
to achieve your objectives
Different types of risk:oEconomic and Non-EconomicoPure Risk and SpeculativeoControllable risk and Uncontrollableo Insurable Risk and Uninsurable
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Types of Risk
EconomicoResults in financial loss.oThree categories of economic loss:
Personal risk – Result in personal lossesProperty risk – Loss of personal or
business property including money, buildings and vehicles.
Liability risk – Harm or injury to other people or their property because of your actions.
oExample: Fred’s Diner incurred a loss due to a fire.
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Types of Risk continued
Non-economic
oMay result in embarrassment or inconvenience without financial impact.
Example: Customers becoming frustrated after waiting in a check line for over 15 minutes then asked to move to another one.
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Types of Risk continued
PureoThreat of a loss without an opportunity for
gain.Example: Frost damages to a strawberry
patch.Hail damage from a storm
Speculative RiskoOffers the chance of gain or loss.
Example: Mary opened a shoe store that she operated for only six months.
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Types of Risk continued
Controllable RiskoOccurs when conditions can be controlled to
lessen the chance of harm.Example: Sears installed a sprinkler system to
reduce the amount of fire damage.
Uncontrollable RiskoCannot be controlled or reduced by actions.
Example: Riding along on a crowded highway with other drivers that are speeding.
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Types of Risk continued
Insurable RiskoMeets criteria of an insurance company for
coverage.Example: An artist purchased insurance to cover his
collection.
Uninsurable risk ◦The possible amount of loss is unpredictable.
Example: A competitor of Staples, an office supply store, moved right across the street.
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Types of Risk continued
Ways businesses may manage risks
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Avoid Transfer Insure Assume
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Ways to Manage Risks
AvoidoRefuse to engage in particular activities.Example: A book company decline an order
to produce 6000 books in one day.
TransferoAllowing someone else to assume the risk.Example: A book company has a contract
for a trucking company to transport its books.
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Ways to Handle Risks
InsureoPurchasing insurance to cover risk.
Example: General Electric sells insurance to customers to cover their appliances.
AssumeoFinishing an activity and accepting full responsibilityExample: Mary runs a coffee shop and offers a refund
if a customer is not satisfied
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Ways to Handle Risks continued
Business insurance
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What can a business insure? Personnel
oHealth insurance provides protection against the high costs of individual health care.
oDisability insurance provides payments to employees who are unable to work for an extended period due to serious illness or injury.
oLife insurance pays the amount of the insurance policy upon the death of the insured.
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Business Insurable Risks
Propertyo Property insurance is purchased to protect
business from financial loss due unpredictable damages to their buildings, equipment, and building contents, including inventory.
Liability oCoverage as a result of accidents and injuries
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Business Insurable Risks continued
Economic conditionsConsumer demandCompetitors' actionsTechnology changesLocal factorsBusiness operations
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Types of Uninsurable Risks
Health insurance coverage
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Hospital insurance oClassified as medical insurance.oCovers for most or all of the charges during a stay
in the hospital. Surgical InsuranceoCovers all or part of the surgeon’s fees for an
operation.
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Health Insurance Coverage
Regular medical insuranceoCovers fees for nonsurgical care given in the
doctor’s office, the patient’s home, or a hospital. Major medical insurance oCovers cost of extended and specialized care
out of the hospital such as medicine and special nursing care.
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Health Insurance Coverage continued
Comprehensive Medical PolicyCombines the features of hospital, surgical, regular, and major medical insurance.
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Health Insurance Coverage continued
Dental InsuranceoContains deductible and coinsurance to reduce
the cost of premiums.oCovers examinations, X rays, cleaning and filling.oCovers dental injuries resulting from accidents.oCovers part or all of complicated dental work such
as crowns or bridges.
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Health Insurance Coverage continued
Vision Care InsuranceoCover eye examinations, prescription lenses,
frames, and contact lenses.oSome plans cover the cost of laser eye surgery
that eliminates the need for glasses.
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Health Insurance Coverage continued
Health insurance may be obtained through employer related groups:
o Group health insuranceo Managed care plans
Health Maintenance Organizations (HMO)Preferred Provider Organizations (PPO)
o State Government Assistance
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HEALTH INSURANCE PROVIDERS
Group Health InsuranceoMost popular way to buy health insurance.oCompanies pay part or all of the premium for their
employees.
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HEALTH INSURANCE PROVIDERS
Managed Care Planso Health Maintenance Organization (HMO)
Consists of a staffed medical clinic to serve members. Members are entitled to a wide range of prepaid health care
services, including hospitalization.o Preferred Provider Organization (PPO)
Provides a group of physicians, a clinic, or a hospital that contract with an insurance company.
Providers agree to charge a set fee for services. Members are encouraged but not required to use the PPO
services.
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HEALTH INSURANCE PROVIDERS
State Government AssistanceWorkers Compensation that provides medical and survivor benefits for people injured, disabled, or killed on the job.
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HEALTH INSURANCE PROVIDERS
