14 Risk Management 14-1 Overview of Risk Management C H A P T E R 14 Risk Management 14-1 Overview of Risk Management 14-2 Insurable Risks 14-3 Uninsurable Risks

KEY TERMS Risk- the possibility of incurring a loss 2 Risk- the possibility of incurring a loss Economic risk- possibility of financial loss Personal risk- possibility of personal loss Property risk- can lead to loss of personal or business property Liability risk- relates to harm or injury to other people or their property because of your action

KEY TERMS CONT. 3 Pure risk- presents the chance of loss but no opportunity for gain Controllable risk- can be reduced or eliminated by actions you take Uncontrollable risk- cannot be reduced by your actions Insurance- exchanges the uncertainty of a possible large financial loss for a certain smaller payment

INSURABLE/ UNINSURABLE 4 If a large number of people face a given risk and the cost of possible losses can be predicted, it is an insurable risk. If a risk is not common or if it is impossible to predict the amount of loss that could be suffered, it is an uninsurable risk.

POSSIBLE WAYS TO DEAL WITH RISK 5 Method Activity Avoid Choose not to complete the risky activity Transfer Find another business to complete the activity Insure Purchase insurance to pay for any losses Assume Complete the activity with full responsibility

INSURANCE BASICS 6 Insurer- agrees to take certain economic risks and to pay for losses if they occur Insured- the person or business for which the insurer assumes the risk Policyholder- the person or company buying the policy Insurance policy- states the conditions to wich the insurance company and the policy-holder have agreed. Premium- the amount the policy-holder must pay for coverage Claim- a policy-holder’s request for payment for a loss that the insurance policy covers.

BUSINESS INSURANCE Insuring personnel Insuring property 7 Insuring personnel Health insurance- helps with the high costs of individual healthcare Disability insurance- provides payments to employees who are not able to work for an extended period due to serious illness or injury. Life insurance- pays the amount of the insurance policy upon the death of the insured Insuring property Commercial property insurance- covers property losses resulting from fire, storms, accidents, theft, and vandalism Vehicle insurance- covers damages to the vehicles, owned by a business, and the occupants of the vehicle Insuring business operations Business interruption insurance- provides compensation for ongoing business expenses that occurs if a business has to temporarily shutdown due to a covered hazard Liability insurance- covers claims by others based on damages suffered because of business operations, employees, or products

IDENTIFYING AND MANAGING RISKS 8 Uninsurable risk factors Economic conditions- when the economy is strong, consumers will be able and willing to spend money. A downturn can quickly reduce sales and profits. Consumer demand- companies try to anticipate customer’s needs and preferences. If they make the right choices they can gain an advantage over the competition Competitors’ actions- being able to respond to competitors is crucial to having a successful business Technology changes- Constant updating of technology (software) Local factors- zoning changes, laws, road construction, all impact the operations of a business Business operations- day-to-day operations of a business can have a major impact on its success or failure

Property Rights 9 Intellectual Property- technical knowledge or creative work Patent- the exclusive right of an inventor to make, sell, and use a product or process Trademark- a distinctive name, symbol, word, picture, or combination of these that a company uses to identify products or services

Property Rights 10 Copyright- protects the original works of authors, composers, playwrights, artists, and publishers Counterfeiting- Illegal uses of intellectual property, patents, trademarks, and copyrights.