1. Chapter 23 Risk and Insurance In the Spotlight:
Whaler’s Catch Restaurant
Small Business Management, 11th edition
Longenecker, Moore, and Petty
2000
South-Western College Publishing
23-1

2. Learning Objectives: Chapter 23
1. Define risk and explain the nature of risk.
2. Explain how risk management can be used in coping with business risks.
3. Describe the risks associated with different types of assets, both physical and human.
4. Explain the basic principles used in evaluating an insurance program and the fundamental requirements for obtaining insurance.
5. Identify the different types of insurance coverage.
Small Business Management, 11th edition
Longenecker, Moore, and Petty
2000
South-Western College Publishing
23-2

3. The Process of Risk Management
Step 1: Identify risks.
Step 2: Evaluate risks.
Step 3: Select methods to manage risk.
Step 4: Implement the decision.
Step 5: Evaluate and review.
Small Business Management, 11th edition
Longenecker, Moore, and Petty
2000
South-Western College Publishing
23-3

4. Ways to Deal with Risk Risk Control Risk Financing Risk avoidance Risk
reduction
Risk
transfer
Risk
retention
Small Business Management, 11th edition
Longenecker, Moore, and Petty
2000
South-Western College Publishing
23-4

5. Risks Associated with Property
Fire
Natural disasters
Burglary and business swindles
Shoplifting
Small Business Management, 11th edition
Longenecker, Moore, and Petty
2000
South-Western College Publishing
23-5

6. Risks Associated with Personnel
Employee dishonesty
Competition from former employees
Loss of key executives
Small Business Management, 11th edition
Longenecker, Moore, and Petty
2000
South-Western College Publishing
23-6

7. Risks Associated with Customers
On-premises injuries
Product liability
Small Business Management, 11th edition
Longenecker, Moore, and Petty
2000
South-Western College Publishing
23-7

8. The Wheel of Misfortune
On-Premise Injury
Fire
Natural Disasters
Product Liability
Burglary and Business Swindles
Bad Debts
Customer Risks
Property Risks
Personnel Risks
Shoplifting
Employee Dishonesty
Bankruptcy
Loss of Key Executives
Competition from Former Employees
Small Business Management, 11th edition
Longenecker, Moore, and Petty
2000
South-Western College Publishing
23-8

9. Basic Principles of a Sound Insurance Program
1. Identify business risks to be insured.
2. Limit coverage to major potential losses.
3. Relate premium costs to probability of loss.
Small Business Management, 11th edition
Longenecker, Moore, and Petty
2000
South-Western College Publishing
23-9

10. Requirements for Obtaining Insurance
1. Risk must be calculable.
2. Risk must exist in large numbers.
3. Insured property must have commercial value.
4. The policyholder must have an insurable interest in the property or person insured.
Small Business Management, 11th edition
Longenecker, Moore, and Petty
2000
South-Western College Publishing
23-10

11. Types of Insurance Commercial property coverage Surety bonds
Credit insurance
Commercial liability insurance
Key-person insurance
Disability insurance
Small Business Management, 11th edition
Longenecker, Moore, and Petty
2000
South-Western College Publishing
23-11