Business risk and insurance U-14

What is business risk?

. The term 'risk' has been defined by different people in different ways. For this reason there is
no single standard definition of this term which is universally used.
. 'Business risk' may be defined as the uncertainty of occurrence of economic loss in the event of
any business activity

Pervasiveness of Risks in business

1. Property and personal

2. Marketing
3. Finance
4. Production
5. Environment

Types of Business risks

1. Pure vs. Speculative risk

2. Dynamic vs. static risks
3. Risk classified by loss severity
4. Objective vs. subjective risks

Risk management

1. Risk identification
2. Proper measurement
3. Consider various tools of risk management
(a) Risk assumption or retention
(b) Loss Prevention
(c) Avoidance
(d) Transfer
(e) Separation
(f) Combination
4. Implementation of the decision made

What is insurance?
Insurance is a means of protection from financial loss. It is a form of risk management, primarily
used to hedge against the risk of a contingent or uncertain loss. An entity which provides
insurance is known as an insurer, an insurance company, an insurance carrier or an underwriter.

Difference between Insurable risks and non-insurable risks

Basis Insurable risks Non-insurable risks

Those risks which can be covered up Those risks which cannot be covered up
Meaning by some type of insurance policy are by some type of insurance policy are
called insurable risks called non-insurable risks

Business
Business risks are not insurable risks Business risks are non insurable risks
risks

Risk of damage due to change in

Risk of damage due to fire, accident,
Example technology or change in government
theft, etc.
policy etc.

Contract of Insurance

1. The Proposal
2. The Cover Notes
3. The Policy

Components of an Insurance Contract

1. Declaration
2. Insuring agreement
3. Exclusions and limitations
4. Conditions
5. Binder

Legal aspects of insurance

1. Utmost good faith

2. Proximate cause
3. Insurable interest
4. Indemnity
5. Subrogation
6. Principle of mitigation of loss

Kinds of Insurance

1. Life insurance
2. Marine Insurance
3. Fire Insurance
4. Motor Insurance
5. Miscellaneous Insurance