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Business Insurance

10. Business Insurance. 10.1 MANAGE RISK 10.2 PRINCIPLES OF INSURANCE 10.3 PROPERTY AND VEHICLE INSURANCE 10.4 PERSONNEL AND LIABILITY INSURANCE. Lesson 10.1 Manage Risk. Goals Define risks and the types of risks faced by individuals and businesses.

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Business Insurance

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  1. 10 Business Insurance 10.1 MANAGE RISK 10.2 PRINCIPLES OF INSURANCE 10.3 PROPERTY AND VEHICLE INSURANCE 10.4 PERSONNEL AND LIABILITY INSURANCE

  2. Lesson 10.1Manage Risk Goals • Define risks and the types of risks faced by individuals and businesses. • Describe the primary methods for managing risks. Chapter 10

  3. Terms • risk • economic risk • pure risk • speculative risk • natural risk Chapter 10

  4. human risk • controllable risk • uncontrollable risk • risk management • liability Chapter 10

  5. Facing Risk • risk • the chance or probability of harm or loss Chapter 10

  6. THE MEANING OF RISK • economic risk • has a potential financial impact • pure risk • no opportunity for financial gain but only loss Chapter 10

  7. speculative risk • has the possibility of either financial loss or gain • opportunity • the possibility for success Chapter 10

  8. TYPES OF RISK • natural risks • arise from natural events or are a part of nature • human risks • result from the actions of individuals, groups or organizations Chapter 10

  9. controllable risks • can be reduced or avoided by thoughtful actions • uncontrollable risks • cannot be controlled by human actions Chapter 10

  10. What is the difference between a risk and an opportunity? Chapter 10

  11. Managing Risk • risk management • systematically identifying risks • making plans to reduce the impact of the risk Chapter 10

  12. RISK MANAGEMNT PROGRAMS • There are three primary sources of risk faced by companies. • property risks • potential damage or loss to property owned, leased and used by a business • personnel risks • include factors that affect the health, life, or earnings of individuals associated with the business • liability risks Chapter 10

  13. liability • an individual or business is responsible to others for negligence Chapter 10

  14. DEALING WITH RISK • There are four ways to deal with business risk. • Avoid the Risk • Transfer the Risk • Insure the Risk • Assume the Risk Chapter 10

  15. What are the four methods a business can use to deal with risks that it faces? Chapter 10

  16. Lesson 10.2Principles of Insurance Goals • Identify and define important insurance terms and concepts. • Understand insurance company organization and operations. • Describe the key parts of an insurance policy. Chapter 10

  17. Terms • insurance • policy • insured • insurer • peril Chapter 10

  18. policyholder • insurable interest • premium • reinsurance • deductible • coinsurance Chapter 10

  19. Insurance Basics • Risk management procedures: • identify each business asset • determine the importance of each asset • asses the financial impact of the loss of the asset on the business operations Chapter 10

  20. INSURANCE TERMS • insurance • a contract providing financial protection against a specified loss • three principles of insurance are: • some risk can be transferred to others • risks are pooled among a large group • individual risk is reduced by controlling the uncertainty of the loss Chapter 10

  21. policy • a legal contract that implements insurance • insured • person or business covered by the policy • insurer • the company that assumes the risk and agrees to pay losses covered by the policy • peril • the cause of a loss Chapter 10

  22. policyholder • the individual or organization to whom the policy is issued • insurable interest • the insured will suffer a financial loss if the insured event occurs • premium • the amount paid to the insurer to keep the insurance policy in force Chapter 10

  23. WHAT CAN BE INSURED • actuaries • trained mathematicians who gather and analyze data • determine risk factors in order to establish premium rates • apply the law of large numbers Chapter 10

  24. Chapter 10

  25. In order for a risk to be insurable: • A large number of individuals or businesses must be facing the same type of risk and be willing to purchase insurance. • The losses from the perils must be accidental and uncertain. • The actual loss must be identifiable and quantifiable. Chapter 10

  26. The probability of loss cannot be too high and the peril cannot be of a type that may affect a large percentage of insured at the same time. • reinsurance • an insurance company sells some of its risk to other insurance companies Chapter 10

  27. List the conditions that must exist in order for a risk to be insurable. Chapter 10

  28. Insurance Companies • There is state and federal oversight of insurance companies. • licensing • capital reserves • rate regulation Chapter 10

  29. OWNERSHIP STRUCTURES • stock companies • private corporations that sell insurance as a profit-making venture • publicly traded • mutual company • a nonprofit corporation owned by its policy holders Chapter 10

  30. INSURANCE OPERATIONS • Rate Making • establishes the amount per unit of value that will be charged for insurance • based on • the type of insurance • factors that can affect the frequency and amount of losses Chapter 10

  31. Selling • insurance agent • licensed by the state and given authority by the insurer to sell its insurance • exclusive agent • employed by the insurance company and sells only that company’s policies • independent agent • either self-employed or works for an insurance sales company • represents several insurance companies Chapter 10

  32. Underwriting • determines if the application fits the criteria that makes the insurance a reasonable risk • Investing • Insurance companies frequently pay more in claims than they receive in premiums for a particular time period. • Premiums and other income are invested in a variety of securities. Chapter 10

  33. Claims Processing • adjuster • determines the extent of a loss and the liability of the insurer • Claims processing must be done carefully to make sure that losses are paid according to the conditions of the insurance policy. Chapter 10

  34. What is the difference between rate making and underwriting? Chapter 10

  35. The Insurance Policy • An insurance policy is a legal document between the insurer and insured. Chapter 10

  36. COMMON PARTS OF A POLICY • declarations • contains identifying information about the insured and the insured property • insuring agreement • the basis of the insurance contract • conditions • identify the conditions that must be met in order for the policy to stay in effect Chapter 10

  37. exclusions • provide specific limitations on the coverage provided • deductible • an identified amount of a loss that must be paid by the insured before the insurer pays • coinsurance • the insurer and the insured share the risk by paying a defined amount of the costs Chapter 10

  38. Describe the four common parts of an insurance policy. Chapter 10

  39. Lesson 10.3Property and Vehicle Insurance Goals • Describe common types of business property insurance. • Identify the main provisions of commercial vehicle insurance. Chapter 10

  40. Terms • coverages • self-insurance Chapter 10

  41. Insuring Property Risks • coverages • the monetary limits and risks covered by an insurance policy Chapter 10

  42. COMPREHENSIVE PROPERTY INSURANCE • Commercial Package Policy (CPP) • a comprehensive business property insurance package • CPP Coverage • buildings owned by the business • fixtures and equipment • coverage on rented buildings • personal property of the business Chapter 10

  43. Chapter 10

  44. Special Coverages • business income insurance • compensates the business for lost income • if the business cannot operate due to a covered peril • extra expenses • incurred by the business to restore operations • consequential damage coverage • covers damages that occur after an incident • that are caused by the incident Chapter 10

  45. BUSINESS OWNERS POLICY • designed for small business owners • offers comprehensive coverage in one policy • each company can tailor the policy to their specific needs Chapter 10

  46. TITLE INSURANCE • title insurance • protects a real estate purchaser from defects in the title • title • the owner’s legal interest in the property • lien • a claim against the property as security for a debt owed by the owner Chapter 10

  47. TRANSPORTATION INSURANCE • transportation insurance • protects against damage, theft or complete loss of goods while they are being shipped • marine insurance • covers shipment on oceans and inland waterways Chapter 10

  48. inland marine insurance • covers all transportation over land as well as storage of products during transit • can also insure structures that are essential to transportation Chapter 10

  49. CREDIT INSURANCE • credit insurance • pays off loan balances in the event of the death or disability of a debtor • trade credit insurance • pays for losses suffered when payment is not made by a business that purchased on credit Chapter 10

  50. CRIME INSURANCE • burglary insurance • the unlawful taking of property from inside the business • robbery insurance • illegally taking property from another person through force or violence • theft insurance • describes all types of stealing Chapter 10

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