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Unformatted text preview: Chapter 17 - Small Business Protection: Risks Management and Insurance CHAPTER 17: SMALL BUSINESS PROTECTION: RISKS MANAGEMENT AND INSURANCE Chapter Summary The last chapter introduced the student to financial and investment risks, while this chapter continues with other sorts of risks. Learning to manage risk within your personal risk tolerance level by insurance or risk sharing methods is also explored. Learning Objectives After studying this chapter, the student should be able to: 1. Understand the meaning and nature of business risk. 2. Recognize the specific types of risks associated with different aspects of business operations. 3. Manage risks to stay within your level of risk tolerance. 4. Learn how insurance can be used to manage business risk. 5. Master sharing risk with other businesses and organizations. Focus on Small Business: Massachusetts Chimney Sweep Guild Chimney sweep companies are small businesses with above average hazard, health and liability risks. Liability insurance on a company to company basis is expensive and difficult to get. By working together, the small business owners that comprise the Massachusetts Chimney Sweep Guild were able to come up with a group insurance plan. Focus on Small Business: Discussion Questions 1. The case mentions two kinds of risks faced by chimney sweeps. Name some others. Other types of risk might include storm, flood, fire, theft, earthquake, avalanche, injury or death to employees, customers, vendors, bystanders, etc. 2. What is the risk to the small business owner of operating without insurance? Small business owners who operate without insurance may be forced to pay for damages to the business or for damages caused by the business. The amount of such damages can be greater than the entire value of the business. 3. Why do you think the data on claim experience was useful for the insurance broker in negotiating the deal? Insurance companies set policy rates in part based on the expected level of payouts to be made. Providing actual claim histories helps the insurance company to estimate both the amount and timing of potential payouts . 17-1 Chapter 17 - Small Business Protection: Risks Management and Insurance Extended Chapter Outline Note: Key terms are in boldface. Teaching tool Internet application International application Group activity Objective 1: Understand the meaning and nature of business risk. 1.1 For business owners, risk is the likelihood that the business may not succeed. 1.1.1 Most entrepreneurs are risk adverse. 1.1.2 If they cannot reduce the level of risk, they are likely to: 188.8.131.52 Insure against the risk. 184.108.40.206 Share the risk with others. 1.2 Business risk is the level of probability that the future economic state of the business will be worse than expected. Most commonly identified business risks include: 1.2.1 Financial risk that is a result of choosing among sources and types of capital investment....
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- Spring '09