1. Business Administration & Management
Mr. Bernstein
Insurance and Risk Reduction, pp
June 12, 2013

2. Business Administration & Management Mr. Bernstein
Types of Risk Businesses Face Speculative Risk: Profit or Loss Product Market People Financial Competitors

3. 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

4. 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

5. 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)

6. 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)

7. 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

8. 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

9. 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

10. Business Administration & Management Mr. Bernstein
Reputation is:
An intangible asset
Greater than brand
Sum total of all stakeholders’ experience

11. 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

12. 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