2Business Risks and Insurance

7/30/2019 2Business Risks and Insurance

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BUSINESS RISKS AND

INSURANCE

BY

ANAM RAFIQUE, NAILA RAFIQUE,

FAIZA JAMIL, NOOR-UL-AIN, IRAM SHAHZADI

AND

UZMA BATOOL


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Definition of business

According to James Stephenson,

Every human activity which is

engaged in for the sake ofearning profit may be called

business.


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Risk the possibility of loss

or injury Business risk risk of loss

that is naturally incurred by

owing and operating abusiness


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TYPES OF BUSINESS RISKS

Insurable vs.

uninsurable risk Controllable vs.

uncontrollable risk


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Pure risk

Economic risk

Human risk

Natural risk

OTHER TYPES OF RISK


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PURE RISK

o Threat of loss with no opportunity for gain

Examples

Employee theftBurglary

Bad checks

Accidents

Involving Customers or employees


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Economic risk

Occurs when there is likelihood of

financial loss

May result from changes in

overall business conditions


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EXAMPLE

If a competitor offers more features, other

businesses need to change their product or

face losses


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Human risk

Risk of harm caused by human mistakes,

dishonesty or other factors attributed to

people


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EXAMPLES

Customer dishonesty

Fraudulent payment

Theft incompetence of employees


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Natural risk

The possibility of a catastrophe caused by

natural elements that can cause damage of

loss or property


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EXAMPLE

Floods

Tornados

Hurricanes Fires

Lightning

Droughts Earthquakes etc.


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Types of businesses

Small scalebusinesses

Medium scalebusinesses

Large scalebusinesses


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Number of people in small businesses are

less than 100Annual revenue is less than $ 7 million


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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


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Common risks

Bad debts creating customers

Increase in competition

Negative cash flow

Natural disasters such as fires and

storms


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Medium scale business

Number of people in such businesses isfrom 100 to 500

Annual revenue is between $7 million to

$35 million dollar(estimate)


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COMMON RISKS

Intellectual property

Theft

Increased competition


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Common risks

Operational risk

Political risk

Country risk

Technological risk

Environmental risk

Economic risk

Financial risk

Terrorism risk


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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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Flood Earthquake


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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


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Strikes, dishonesty, carelessness are examples of human

causes of business risk

Dishonesty of employees, misappropriation of cash and thef t

of goods may also become a cause of loss for business

HUMAN CAUSES


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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 economymay also create business risks

ECONOMIC CAUSES


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Assets used in bus iness may depreciate in value

Technical changes and mechanical defects also result in

business risks

PHYSICAL CAUSES


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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


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Methods Of Risk ProtectionReducing oreliminating

the risk

Efficientmanagement

A reserve

cash

Shifting ofrisks


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Reducing or eliminating risk


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Efficient management


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A reserve cash


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Shifting of risk


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Contract between two parties

Process of collecting money

Compensation to losses


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According to Oxford Dictionary,

Insurance means undertaking, by a

company, society or the state toprovide safeguard against loss,provision against sickness, death, etc.in return for regular payments.


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MAIN POINTS OF DEFINITION

An undertaking

Safeguard


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Benefits of insurance to

individuals

Peace of mind

Aversion of riskProtects mortgaged properties

Provides self dependency

Tool of savings

Tool of investment


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Reduce reserve requirements

Capital freed for investment

Reduction of uncertainty

Loss control activities Business and social stability


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Benefits of insurance to society

Protects wealth of country

Helps in economic growth

Control inflation


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PRINCIPLES OF INSURANCE

Utmost good faith

The principle of indemnity Proximate cause

Mitigation of loss

Arbitration


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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


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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


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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


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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


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Cancellation

Both parties have right to cancel or terminate

the insurance before its expiry date

Their relationship come to an end on the dateof cancellation of policy


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Life insurance


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We can define life insurance as a contract inwhich 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 thecompensation or the matured sum respectively


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This insurance is done by

businesses for safety delivery of

goods, while transferring goodsfrom one place to another by seaway, land way, air way


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Fire insurance is an insurance that coverproperty such as home, shop and other fixed

asset protection against fire, burn etc. It also cover distraction of property due to fire

Which companies provide insurance in


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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


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EconomicBackwardness

Poverty

IlliteracyReligiousbeliefs

Trend ofInsurance


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Economic backwardness

Lack of resources

Limited scope of business activities

Lack of professional management


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Lack of savings

Basic needs of life


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Illiterate majority

Ignorance

Views of people


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Varying opinions of religious scholars

Deep attachment to scholars

People considered it to be a form of Riba


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No fore sightness

Legacy of people


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Conclusion


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Our visitO To

state life insurance company limited


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ANY QUESTION


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Date post:	14-Apr-2018
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