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Insurance Laws and Practices




                    Notes          5.  Catastrophic Loss: Business insurance protects a business from closing due to a catastrophic
                                       loss. Fires, floods, hurricanes and tornadoes have been the end of many businesses in
                                       Texas, as elsewhere. When a company carries insurance against these types of losses,
                                       closure and loss are only temporary instead of permanent. Companies should always
                                       consider business interruption insurance, a rider on their business insurance policy, to
                                       ensure continued cash flow for the duration of a closure due to a natural disaster.
                                   6.  Personal Injury or Illness: Business owners should have personal insurance as well. Medical
                                       insurance will ensure medical bills incurred due to an illness or injury will not wipe out
                                       a business’s assets.

                                   Self Assessment

                                   Fill in the blanks:

                                   13.  Business liability insurance covers accidents that occur on the business premises, product
                                       defects and mishaps that occur during normal business ………………………………………..
                                       on and off premises.
                                   14.  Depending on the business entity ……………….…... not only the business assets, but also
                                       the owner’s personal assets could be at risk.
                                   2.5 Managing Risk


                                   You must remember that the steps to management in general, include—plan, organise, delegate,
                                   motivate, training, control, course corrections and achieving the goals. Management of risks is
                                   also concerned with direction of purposeful activities towards the achievement of individual or
                                   organizational goals.

                                   Risk Management may be defined as “the identification, analysis and economic control of those
                                   risks, which can threaten the assets or earning capacity of an enterprise.”
                                   Risk Management evaluates which risks identified in the risk assessment process require
                                   management. It then selects and implements the plans or actions that are required to ensure that
                                   those risks are controlled.

                                   Mark Dorfman says “risk management is the logical development and execution of a plan to
                                   deal with potential losses”. The risk can include both positive aspect (upside) and negative
                                   (downside) aspect. Risk management often refers to reducing downside likelihood and enhances
                                   the returns on topside.
                                   Risks that a business faces include:

                                       Environmental risks: legal, social, economic, financial risks
                                       Speculative risks
                                       Technological changes

                                       Pure risks
                                       Fundamental risks.
                                   Risk Management helps a business to face risks in a better and prepared manner. Thus, risk
                                   management is a process, which assures that:

                                       Achievement of aims is more likely;
                                       Harmful things do not happen or are less likely to happen;




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