BUSINESS RISKS AND INSURANCE

BY
ANAM RAFIQUE, NAILA RAFIQUE,
FAIZA JAMIL, NOOR-UL-AIN, IRAM SHAHZADI AND UZMA BATOOL

Definition of business
According to James Stephenson, Every human activity which is engaged in for the sake of earning profit may be called business.

 Risk the possibility of loss or injury Business risk risk of loss that is naturally incurred by owing and operating a business

TYPES OF BUSINESS RISKS

Insurable vs. uninsurable risk Controllable vs. uncontrollable risk

OTHER T YPES OF RISK

Pure risk Economic risk Human risk Natural risk

PURE RISK
o Threat of loss with no opportunity for gain

Examples Employee theft Burglary Bad checks Accidents Involving Customers or employees

Economic risk

Occurs when there is likelihood of financial loss May result from changes in overall business conditions

EXAMPLE
If a competitor offers more features, other businesses need to change their product or face losses

Human risk
Risk of harm caused by human mistakes, dishonesty or other factors attributed to people

EXAMPLES
Customer dishonesty Fraudulent payment Theft incompetence of employees

Natural risk
The possibility of a catastrophe caused by natural elements that can cause damage of loss or property

EXAMPLE
Floods Tornados Hurricanes Fires Lightning Droughts Earthquakes etc.

Types of businesses
Small scale businesses Medium scale businesses

Large scale businesses

 Number of people in small businesses are less than 100 Annual revenue is less than $ 7 million

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

Common risks
Bad debts creating customers Increase in competition Negative cash flow Natural disasters such as fires and storms

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)

COMMON RISKS
Intellectual property Theft Increased competition

Common risks
Operational risk Political risk Country risk Technological risk Environmental risk Economic risk Financial risk Terrorism risk

Large scale businesses

Number of people in such business organization is more than 500 Annual revenue is more than $35 million (estimate)

Flood

Earthquake

NATURAL CAUSES

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.

HUMAN CAUSES
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

ECONOMIC CAUSES
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 economy may also create business risks

PHYSICAL CAUSES
Assets used in business may depreciate in value Technical changes and mechanical defects also result in business risks

POLITICAL CAUSES
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

Methods Of Risk Protection

Reducing or eliminating the risk

Efficient management
A reserve cash Shifting of risks

Reducing or eliminating risk

Efficient management

A reserve cash

Shifting of risk

Contract between two parties Process of collecting money Compensation to losses

According to Oxford Dictionary, 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.

MAIN POINTS OF DEFINITION

An

undertaking Safeguard

Benefits of insurance to individuals

Peace

of mind Aversion of risk Protects mortgaged properties Provides self dependency Tool of savings Tool of investment

Reduce reserve requirements Capital freed for investment Reduction of uncertainty Loss control activities Business and social stability

Benefits of insurance to society

Protects

wealth of country Helps in economic growth Control inflation

PRINCIPLES OF INSURANCE
Utmost good faith The principle of indemnity Proximate cause Mitigation of loss Arbitration

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

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

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

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

Cancellation
Both parties have right to cancel or terminate the insurance before its expiry date Their relationship come to an end on the date of cancellation of policy

Life insurance

We can define 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

This insurance is done by businesses for safety delivery of goods, while transferring goods from one place to another by sea way, land way, air way

Fire insurance is 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

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

Economic Backwardness
Trend of Insurance

Poverty

Religious beliefs

Illiteracy

Economic backwardness
Lack of resources Limited scope of business activities Lack of professional management

 Lack

of savings Basic needs of life

 Illiterate

majority Ignorance Views of people

 Varying

opinions of religious scholars Deep attachment to scholars People considered it to be a form of Riba

 No

fore sightness Legacy of people

Conclusion

Our visit
O To

state life insurance company limited

ANY QUESTION