Business Administration &
Management
Mr. Bernstein
Insurance and Risk Reduction,
pp 492-504
June 5, 2015
Business Administration &
Management
Mr. Bernstein
Types of Risk Businesses Face
Speculative Risk: Profit or Loss
Product
Market
People
Financial
Competitors
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Business Administration &
Management
Mr. Bernstein
Types of Risk Businesses Face
Pure Risk: Risk of Loss with no potential for upside
Crime - Small Businesses 35x more likely to be
victims than Large Businesses
Employee Theft – “Shrinkage” > shoplifting
Burglary, Robbery
Credit Card fraud, bad checks
Natural Disasters
Fire
Accidents and Injury
3
Business Administration &
Management
Mr. Bernstein
Insurable Risks
Pure Risk
Losses can be estimated
Uninsurable Risks (see slides 8-12)
Economic conditions, Consumer Demand,
Competitor Actions, Technology
4
Business Administration &
Management
Mr. Bernstein
Reducing Insurance Costs:
Controllable Risks
Can be reduced by actions (ie theft)
Uncontrollable Risks
Cannot affect with actions (ie weather)
5
Business Administration &
Management
Mr. Bernstein
Types of Insurance Available
Property Insurance
Business Interruption Insurance
Liability Insurance
Life Insurance
Worker’s Compensation
Flood (not usually included in Property Insurance)
6
Business Administration &
Management
Mr. Bernstein
How insurance rates are established
Insurance companies will insure against risks which
both loss amounts and frequency can be estimated
Actuaries analyze data and make those estimates
Deductible amounts reduce premiums
7
Business Administration &
Management
Mr. Bernstein
Uninsurable Risks
Economic conditions, Consumer Demand,
Competitor Actions, Technology Advances
Black Swan Events
Rare events beyond the
realm of normal
expectations
8
Business Administration &
Management
Mr. Bernstein
Reputational Risk
85% of international firms consider brand their most
important asset
Respondents ranked “loss of reputation” their
greatest risk.
Source: Interbrand /Citibank and Knight, RF & Pretty, DJ, Reputation & Value - the case of Corporate catastrophes
9
Business Administration &
Management
Mr. Bernstein
Reputation is:
An intangible asset
Greater than brand
Sum total of all stakeholders’ experience
10
Business Administration &
Management
Mr. Bernstein
Management of reputation is crucial
“If I lost all of my factories and trucks but kept
the name Coca-Cola, I could rebuild my business.
If I lost my name, the business would collapse”.
CEO, Coca-Cola
11
Business Administration &
Management
Mr. Bernstein
Management of reputation is crucial
Reputation is damaged when something is done that
causes stakeholders to lose trust in an organization
It does not matter whether it is real – it is the
perception that counts.
Reputation can be destroyed very rapidly
Have a crisis plan
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