BUS323 Insurance and Risk Management
Dr. Patricia A. Ryan
December xx, 2014
Insurance and Risk Management
One of the major concerns in the recent times is how to minimize theoccurrence of risk both in business entities and within peopleslife’s this has led to the emergence of the insurance and riskmanagement concepts. Risk management entailsidentification, analysis and either mitigation or acceptance ofuncertainty in investment decision making. In other words, the riskmanagement concept involves the aspects of identifying, analyzing,controlling, and avoiding, elimination of unacceptable risks in thesociety (Cordis et al, 2014). For example, an organization mayincorporate risk assumption, risk avoidance, risk retention, risktransfer in roper management offuture events.On the other hand, insuranceis a contract whereby an entity or an individual receives a financialreimbursement or protectionagainst risks or losses. The twoconcepts have gone hand in hand in the recent times as measures havebeen all through been implemented to reduce the number and magnitudeof risk in society (Tannahill, 2013).
The two concepts (risk managementand insurance) have been used to prepare learners in the process ofidentifying, analyzing, and managing of risks that are inherent inthe operation of profit and not-for-profit institutions. Numerousareas are covered within the two areas such as property, liability,health and life insurances, employee benefits programs and governmentinsurance programs (Lundqvist, 2014).Studying in insurance and risk management leads to professionalcareers in risk management in addition, the major cultivates skillsrequired for challenging opportunities in organizations that acceptthese risks, private and governmental insurers, as well asbrokerage/agency and consulting organizations. This paper looks intothe relationship between risk management with different types ofinsurance offered to people and businesses globally. There aredifferent types of insurance policies that can be offered. Theseinclude policies such as general liability, property, life andhealth, workers compensation, corporate insurance among many others(Roeschmann, 2014).
Three Types of insurance
As mentioned earlier, there are different types of insurance.However, for this paper the three chosen types of insurance includeLife and Health Insurance, business insurance and personalinsurance.
Business insurance, this is the coverage that is given tobusiness entities, whether big or small to protect them from risksand loosed from events that may occur during the business operations.Within the business insurance there are other numerous types ofinsurance. These include types such as commercial propertyinsurance. This type of insurance under the business insuranceoffering covers on everything that is related to damage and loss of acompany’s property which may be caused by factors such as wind,fire, hailstorm, vandalism among other factors. This is coveredthrough any of the two policies all risk policies or peril specificpolicies
All-risk policies generally cover risks faced by the average smallbusiness, while peril-specific policies are usually purchased whenthere is a high risk of peril in a certain area. Consult yourinsurance agent or broker about the type of business propertyinsurance best suited for your small business. Other types ofbusiness insurance include home based business insurance thatis used to cover for risks, such asgeneral and professional liability. There is also the productliability insurance, and general liability insurance allof which are categorized under business insurance (Lundqvist, 2014).
Health and life insurance commonly known as HealthInsurance is a type of insurance cover that caters forbeneficiaries medical and surgical expenses, which are incurred bythe insured person. This insurance cover can either payback to the insured for expenses incurred from illness or nay injuryincurred or else, it can pay directly to the care provider. In manycases, the Health insurance is frequently incorporated in employersbenefit packages as a means of tantalizing quality employees. Underthe case of health insurance, there are disability, accident, life,health, and Medicare supplement insurances. Health insurance in manycases is affiliated with life insurance. Lifeinsurance is a policythat pays out money to insurer’s beneficiaries after he/she dies orafter a specified period. The essence of life insurance is tosafeguard the beneficially, from the financial impact that may becaused by the death of the insured (Roeschmann, 2014).
Lastly, there is the PersonalInsurance. Accordingto Insurance Institute of America, personal insurance is referred as,an insurance product, which entails, protection for personal andfamily protection, purposes as contrasted with insurance of businessproperty or interests. Personal insurance is all about providingcover, for one’s life and family. The types of personal insuranceinclude policies such as life insurance, critical illness, as well asincome protection. Personal, life and health insurance shares someaspects as some are involved in all the types of insurance. The basicessence of insurance is the prevention of risks or losses that may bedamaging to an individual or business establishment. According todefinition of insurance, it is a type of financial product, which isset to protect and individual or a business from unforeseeabledamages or losses. In this case, an accident of an individual is seenat risk, fire in business mall causes losses, and this needs cover toreduce the losses and damages.
Risks in Society
In each and every business, there are challenges/risks that face thebusiness. These risks may vary from one business to another,depending on what type of business is it? However, risks can bedivided into either internal or external risk in a business. Insimple terms, a risk may be defined as a situation exposing abusiness or a person to danger. A risk is the potential to losesomething that is valuable, and in turn it becomes an essentialpractice to identify, analyze and engage in minimizing the among ofrisks that may affect a business entity or an individual. In thesociety, there are different and numerous risks that affect people.Health risks, business risks, natural risks among others. In abusiness setting, there are both internal and external risks.Internal risks involve aspects such as operational and organizationalrisks, innovation, strategic risks, employee as well as financialrisks. On the other hand, external risks pertain natural orenvironmental risks, health and safety, technology, and political andeconomical risks (Lundqvist, 2014).
In reference to the insurance types identified above, they areinitiated to help in minimizing the impact of these risks. To startwith, life insurance entails four forms of life insurance. Lifeinsurance, income protection, trauma and permanent/ total disabilityinsurance. These products of life insurance cater for risks in one’slife, such as accident, death or sickness. The type of risk covereddepends on what type of insurance cover is taken (Prokop& Pfeifer, 2013).Secondly, business insurance caters for a number of risks in abusiness, just like the case with life insurance, business insurancehas different insurance product, and each has a definite risk toprotect the business from. Some of the risks that are handled throughbusiness insurance include financial losses, theft, fire, naturaldisasters. In a business, insurance minimizes the negative impact ofrisks on liability, property, or business interruption. In the caseof personal insurance the risks covered by the insurance are similarto the life and health insurance (Lundqvist, 2014).
Risk and Insurance
Risk and insurance are directly related. In recent times, insurancecovers are taken against different risks. As discussed, a businessmay be affected either internal or external risks and in order tominimize the tremendous negative impact of risks, insurance aspectscomes in to solve the uncertainty. In reference to the differenttypes of insurance discussed above, there is a clear relationshipbetween risk and insurance. Insurance is taken as a counter opposingforce to a risk. For the two to be related, there must be anexistence of uncertainty and exposure. For example, life insurance,when an individual takes life insurance, he is certain he will diehowever, he isn’t sure or certain when, he will die. The insurergives a cover against premature death. Insurance is there a cover fora risk or uncertainty that may affect a business or an individual(Dionne, 1992).
Risk Management Tools
Risk management tools are implementations or devices that allowplanners to clearly address uncertainty through identification ofmetrics and development of responses for tracing risk. Riskmanagement tools and techniques, are essential in helping to identifyrisks, analyze, and plan for minimization of risk impact to abusiness or an individual. Risk analysis and management tools servemultiple purposes and come in many shapes and sizes. These toolsinclude, risk matrix, level of risk scale, consequence scale,likelihood and finally, scale for evaluating risk. Risk managementtools help determine risks, i.e. Exceptionaltools exist and helps one to establish the forces likely to presentrisks to one’s business. The tools also help to evaluate thepossible effects of the risks. Finally, risk management tools help inmitigation and management (Prokop & Pfeifer, 2013).
Legal Aspects of Risk and Insurance
In reference to the insurance and risk, there are set principlesbehind the two aspects referred to as the legal aspects of risk andinsurance. There are definite legal aspects governing the twoimportant aspects both at business and individual levels. There arelaw aspects that are related to the issues on risk and insurance andhence, the two have to be legally acceptable or defines among peopleand within businesses. In both cases there are legal requirement thatare supposed to be followed for a risk to be regarded as a risk whichcan be insured against. The law defines how the payment of a contactmay be executed as well as when the contact may be cancelled. Inaddition to definition of how a contract may be terminated betweenthe parties involved, there are different key legal biding tools tothe contact between the insurer and the insuring company.
Insurance and risk management has become an essential part ofpeople’s life’s as well as in business operations. Riskmanagement helps in identifying analyzing and in turn taking measuresto minimize the negative impact that may be associated with the risksidentified. At this point the essence of insurance comes in. From theinformation obtained, it’s clear that, the basic aspect ofinsurance is to minimize the impact that may be caused byunforeseeable sources. There are different types of insurance coversin existence and it depends on the risk being covered. Riskmanagement and insurance has in turn become an inseparable aspect inbusiness entities as well as in personal life’s.
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