5 Types of Risk What is risk? What is risk management? Different types of risk:Economic and non-economicPure risk and speculativeControllable risk and uncontrollableInsurable risk and uninsurableWhat is risk?The possibility of incurring a loss.What is risk management?It is a systematic process of managing risk to achieve set objectives.
6 Types of Risk continued EconomicResults in financial loss.Three categories of economic loss:Personal risk – Result in personal lossesProperty 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.
7 Types of Risk continued Non-economicMay result in embarrassment or inconvenience without financial impact.Example: Requesting for customers to move to another check-out lane.PureThreat of a loss without an opportunity for gain.Example: Frost damages a strawberry patch.
8 Types of Risk continued Speculative RiskOffers the chance of gain or loss.Example: Mary opened a shoe store that operated for only six months.Controllable RiskOccurs when conditions can be controlled to lessen the chance of harm.Example: Sears installed centralized customer service stations in order to increase convenience.
9 Types of Risk continued Uncontrollable RiskCannot be controlled or reduced by your actions.Example: Riding along a highway with other speeding automobiles.Insurable RiskMeets criteria of an insurance company for coverage.Example: An artist purchased insurance to cover his collection.
10 Types of Risk continued Unpredictable amount of lossExample: A competitor of Staples, an office supply store, moved right across the street.
13 Ways to Handle Risks Avoid the risk Transfer the risk Declining to engage in particular activities.Example: A book company decline an order to produce 6000 books in one day.Transfer the riskAllowing someone else to assume the risk.Example: A book company has a contract for a trucking company to transport its books.
14 Ways to Handle Risks continued Insure the riskPurchasing insurance to cover risk.Example: General Electric sells insurance to customers to cover their appliances.Assume riskFinishing an activity and accepting full responsibilityExample: Mary runs a coffee shop and offers a variety of services.
16 Business Insurable Risks PersonnelHealth 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.
17 Business Insurable Risks continued PropertyInsurance is purchased to protect business from financial loss due unsuspectingly damages to their buildings, equipment, and building contents, including inventory.Business OperationsCoverage as a result of accidents, injuries, and property damage.
18 Types of Uninsurable Risks Economic ConditionsConsumer DemandAction of CompetitorsTechnology ChangesLocal FactorsBusiness Operations
20 Health Insurance Coverage Hospital insuranceClassified as medical insurance.Covers for most or all of the charges during a stay in the hospital.Surgical InsuranceCovers all or part of the surgeon’s fees for an operation.
21 Health Insurance Coverage continued Regular medical insuranceCovers fees for nonsurgical care given in the doctor’s office, the patient’s home, or a hospital.Major medical insuranceCovers cost of extended and specialized care out of the hospital such as medicine and special nursing care.
22 Health Insurance Coverage continued Comprehensive Medical PolicyCombines the features of hospital, surgical, regular, and major medical insurance.
23 Health Insurance Coverage continued Dental InsuranceContains deductible and coinsurance to reduce the cost of premiums.Covers examinations, X rays, cleaning and filling.Covers dental injuries resulting from accidents.Covers part or all of complicated dental work such as crowns or bridges.
24 Health Insurance Coverage continued Vision Care InsuranceCover eye examinations, prescription lenses, frames, and contact lenses.Some plans cover the cost of laser eye surgery that eliminates the need for glasses.
25 HEALTH INSURANCE PROVIDERS Health insurance may be obtained through employer related groups. They include:Group health insuranceManaged care plansHealth Maintenance Organizations (HMO)Preferred Provider Organizations (PPO)State Government Programs
26 HEALTH INSURANCE PROVIDERS Group Health InsuranceMost popular way to buy health insurance.Companies pay part or all of the premium for their employees.
27 HEALTH INSURANCE PROVIDERS Managed Care PlansHealth 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.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.
28 HEALTH INSURANCE PROVIDERS State Government AssistanceWorkers Compensation that provides medical and survivor benefits for people injured, disabled, or killed on the job.
30 Life Insurance Principles Life insurance protects survivors against financial loss associated with death.Two basic types:TermPermanent
31 Types of Life Insurance Term Life InsuranceProvides financial protection from losses resulting from a death during a definite period or term.Least expensive form of life insurance.Only life insurance that is purely life insurance without savings and investments.
32 Types of Life Insurance continued Permanent Life InsuranceHas cash value and an investment feature.Part of the premium paid is used for insurance that provides protection.The insurance company invests part of the premium.
33 Types of Life Insurance continued Group Life InsuranceCovers a group of people.Offers term rather than permanent insurance.Individual is covered by their employer