Page 27 - DCOM309_INSURANCE_LAWS_AND_PRACTICES

Insurance Laws and Practices

Notes Management may exceed its limit of technical abilities especially in case of firms seeking
to develop new products or introduce new processes.

The plant layout may prove to be badly planned.
Plant may fail to operate efficiently and effectively.
Change in market conditions may have adverse impact on the availability of materials /
parts.
Cost of materials and parts may go up.

Marketing and Distribution Risks

You must understand that in order to succeed, a firm must be able to sell all it products at the
planned price, and then deliver those products to its customers properly, i.e., right product in
right time, place and price. It may fail to do so due to reasons like:

Competitors undercut the price or introduce better products;
Fashions/tastes of consumers change;
General economic conditions at home or abroad may react adversely on sales;

Export sales may be lost because of political moves, such as changes in exchange controls,
tariffs, or import quotas.
Despite of a firm’s best efforts to minimize such risks (by undertaking extensive market research)
particularly new products may fail to sell in the numbers planned due to one or other reason.

Financial Risks

A firm may find itself in difficulty due to financial factors such as:
An increase in the cost of borrowing caused by a rise in market interest rates.

Lesser availability of bank credit.
High-gearing – A heavy dependence upon loan capital relative to equity capital (known
as a high capital gearing) increases the risks for creditors and shareholders both.

Return on investment lower than interest payments.
Hike (increase) in interest rates more than provided for.

The failure of debtors to settle their debts can be another source of financial loss.
Inability of debtor(s) to pay arises particularly in overseas trade where goods may be sold
on extended credit, thus, the buyer, even though willing and able to pay, may be prevented
from doing so because of exchange control regulations or their restrictions imposed by
the government.

Personnel Risks

The success or failure of business depends on the ability, integrity, zeal and passion of its
directors, managers, and employees.
The loss of a key man due to injury, sickness, or death may endanger the success of a
project or negotiation of a major sales contract.

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