1. Essential Standard 5.00 Understand business credit and risk management. 1

2. Objective 5.02 Understand risk management and insurance. 2

3. Topics Types of risk Ways to handle risks Business Insurance Uninsurable risks 3

4. Types of risk Essential Question What are the types of risk? 4

5. Types of Risk What is risk? The possibility of incurring a loss. What is risk management? It is a systematic process of managing risk to achieve set objectives. Different types of risk:  Economic and non-economic  Pure risk and speculative  Controllable risk and uncontrollable  Insurable risk and uninsurable 5

6. Types of Risk continued Economic  Results in financial loss.  Three categories of economic loss:  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. 6

7. Types of Risk continued Non-economic  May result in embarrassment or inconvenience without financial impact.  Example: Requesting for customers to move to another check-out lane. Pure  Threat of a loss without an opportunity for gain.  Example: Frost damages a strawberry patch. 7

8. Types of Risk continued Speculative Risk  Offers the chance of gain or loss.  Example: Mary opened a shoe store that operated for only six months. Controllable Risk  Occurs when conditions can be controlled to lessen the chance of harm.  Example: Sears installed centralized customer service stations in order to increase convenience. 8

9. Types of Risk continued Uncontrollable Risk  Cannot be controlled or reduced by your actions.  Example: Riding along a highway with other speeding automobiles. Insurable Risk  Meets criteria of an insurance company for coverage.  Example: An artist purchased insurance to cover his collection. 9

10. Types of Risk continued Unpredictable amount of loss  Example: A competitor of Staples, an office supply store, moved right across the street. 10

11. Ways to handle risk Essential Question H ow can businesses handle risk of loss? 11

12. Ways to Handle Risks  Avoid  Transfer  Insure  Assume 12

13. Ways to Handle Risks Avoid the risk  Declining to engage in particular activities.  Example: A book company decline an order to produce 6000 books in one day. Transfer the risk  Allowing someone else to assume the risk.  Example: A book company has a contract for a trucking company to transport its books. 13

14. Ways to Handle Risks continued Insure the risk  Purchasing insurance to cover risk.  Example: General Electric sells insurance to customers to cover their appliances.  Assume risk  Finishing an activity and accepting full responsibility  Example: Mary runs a coffee shop and offers a variety of services. 14

15. Business insurance Essential Question Why do businesses buy insurance? 15

16. Business Insurable Risks Personnel  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. 16

17. Business Insurable Risks continued Property  Insurance is purchased to protect business from financial loss due unsuspectingly damages to their buildings, equipment, and building contents, including inventory. Business Operations  Coverage as a result of accidents, injuries, and property damage. 17

18. Types of Uninsurable Risks Economic Conditions Consumer Demand Action of Competitors Technology Changes Local Factors Business Operations 18