Understand 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: o Economic and Non-Economic o Pure Risk and Speculative o Controllable risk and Uncontrollable o Insurable Risk and Uninsurable 2

 Economic o Results in financial loss. o Three categories of economic loss:  Personal risk – Result in personal losses  Property 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. o Example: Fred’s Diner incurred a loss due to a fire. 3

 Non-economic o May 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. 4

 Pure o Threat of a loss without an opportunity for gain.  Example: Frost damages to a strawberry patch.  Hail damage from a storm  Speculative Risk o Offers the chance of gain or loss.  Example: Mary opened a shoe store that she operated for only six months. 5

 Controllable Risk o Occurs 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 Risk o Cannot be controlled or reduced by actions.  Example: Riding along on a crowded highway with other drivers that are speeding. 6

 Insurable Risk o Meets 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. 7

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 Avoid  Transfer  Insure  Assume 9

 Avoid o Refuse to engage in particular activities.  Example: A book company decline an order to produce 6000 books in one day.  Transfer o Allowing someone else to assume the risk.  Example: A book company has a contract for a trucking company to transport its books. 10

 Insure o Purchasing insurance to cover risk.  Example: General Electric sells insurance to customers to cover their appliances.  Assume o Finishing an activity and accepting full responsibility  Example: Mary runs a coffee shop and offers a refund if a customer is not satisfied 11

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 What can a business insure?  Personnel o Health insurance provides protection against the high costs of individual health care. o Disability insurance provides payments to employees who are unable to work for an extended period due to serious illness or injury. o Life insurance pays the amount of the insurance policy upon the death of the insured. 13

 Property o Property insurance is purchased to protect business from financial loss due unpredictable damages to their buildings, equipment, and building contents, including inventory.  Liability o Coverage as a result of accidents and injuries 14

 Economic conditions  Consumer demand  Competitors' actions  Technology changes  Local factors  Business operations 15

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 Hospital insurance o Classified as medical insurance. o Covers for most or all of the charges during a stay in the hospital.  Surgical Insurance o Covers all or part of the surgeon’s fees for an operation. 17

 Regular medical insurance o Covers fees for nonsurgical care given in the doctor’s office, the patient’s home, or a hospital.  Major medical insurance o Covers cost of extended and specialized care out of the hospital such as medicine and special nursing care. 18

Comprehensive Medical Policy Combines the features of hospital, surgical, regular, and major medical insurance. 19

Dental Insurance o Contains deductible and coinsurance to reduce the cost of premiums. o Covers examinations, X rays, cleaning and filling. o Covers dental injuries resulting from accidents. o Covers part or all of complicated dental work such as crowns or bridges. 20

Vision Care Insurance o Cover eye examinations, prescription lenses, frames, and contact lenses. o Some plans cover the cost of laser eye surgery that eliminates the need for glasses. 21

Health insurance may be obtained through employer related groups: o Group health insurance o Managed care plans  Health Maintenance Organizations (HMO)  Preferred Provider Organizations (PPO) o State Government Assistance 22

Group Health Insurance o Most popular way to buy health insurance. o Companies pay part or all of the premium for their employees. 23

Managed Care Plans o 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. 24

State Government Assistance Workers Compensation that provides medical and survivor benefits for people injured, disabled, or killed on the job. 25