Essential Standard 5.00
Understand business credit and risk
management.
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Objective 5.02
Understand risk management and
insurance.
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Topics
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Types of risk
Ways to handle risks
Business Insurance
Uninsurable risks
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Types of risk
Essential Question
What are the types of risk?
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Types of Risk
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What is risk?
The possibility of incurring a loss.
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What is risk management?
It is a systematic process of managing risk to
achieve set objectives.
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Different types of risk:
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Economic and non-economic
Pure risk and speculative
Controllable risk and uncontrollable
Insurable risk and uninsurable
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Types of Risk continued
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Economic
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Results in financial loss.
Three categories of economic loss:
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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.
Example: Fred’s Diner incurred a loss due to a fire.
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Types of Risk continued
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Non-economic
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May result in embarrassment or inconvenience
without financial impact.
Example: Requesting for customers to move to
another check-out lane.
Pure
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Threat of a loss without an opportunity for gain.
Example: Frost damages a strawberry patch.
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Types of Risk continued
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Speculative Risk
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Offers the chance of gain or loss.
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Example: Mary opened a shoe store that operated for
only six months.
Controllable Risk
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Occurs when conditions can be controlled to
lessen the chance of harm.
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Example: Sears installed centralized customer service
stations in order to increase convenience.
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Types of Risk continued
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Uncontrollable Risk
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Cannot be controlled or reduced by your actions.
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Example: Riding along a highway with other speeding
automobiles.
Insurable Risk
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Meets criteria of an insurance company for
coverage.
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Example: An artist purchased insurance to cover his
collection.
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Types of Risk continued
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Unpredictable amount of loss
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Example: A competitor of Staples, an office supply
store, moved right across the street.
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Ways to handle risk
Essential Question
How can businesses handle risk of loss?
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Ways to Handle Risks
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Avoid
Transfer
Insure
Assume
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Ways to Handle Risks
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Avoid the risk
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Declining to engage in particular activities.
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Example: A book company decline an order to produce
6000 books in one day.
Transfer the risk
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Allowing someone else to assume the risk.
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Example: A book company has a contract for a trucking
company to transport its books.
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Ways to Handle Risks continued
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Insure the risk
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Purchasing insurance to cover risk.
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Example: General Electric sells insurance to customers
to cover their appliances.
Assume risk
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Finishing an activity and accepting full
responsibility
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Example: Mary runs a coffee shop and offers a variety
of services.
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Business insurance
Essential Question
Why do businesses buy insurance?
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Business Insurable Risks
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Personnel
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Health insurance provides protection against the high
costs of individual health care.
Disability insurance provides payments to employees
who are unable 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.
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Business Insurable Risks continued
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Property
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Insurance is purchased to protect business from
financial loss due unsuspectingly damages to
their buildings, equipment, and building contents,
including inventory.
Business Operations
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Coverage as a result of accidents, injuries, and
property damage.
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Types of Uninsurable Risks
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Economic Conditions
Consumer Demand
Action of Competitors
Technology Changes
Local Factors
Business Operations
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