Syllabus

Personal and Business Risk Management

Health and Medical Insurance

Business Property Insurance

Marine Insurance

Fire Insurance
 Health and Medical Insurance
Health Insurance is defined as “ Coverage that provides for the payment of benefits as a result of
sickness or injury. It includes insurance for losses from accident, medical expenses and disability ‘’

Health Insurance , on the other hand, needs to follow the principal of indemnity, so that it is
placed in non life category.

Health Insurance is a contract between an insurance provider ( an insurance company or any

agency ) and an individual .

The contract can be for short period and renewable periodically ( semi annually/annually ) or life
long in the case of private insurance or be mandatory for all citizens in the case of national plans.

The health insurance contract is quite different from other insurance. In other insurance, only two
parties are involved but in health insurance, there are at least three parties which are a) Insured,
b) Insurer c) and health service provider .
 Importance of Health Insurance
Health is the most important assets of human being.
Medical Consultation, medical treatment, old age care has been increased every year as a
result of cost of medicine and health services increasing year to year.
The cost of health care is either managed by a citizen from their pocket which is known as
out-of –pocket expenses ( OOP) or by Government.
To relief from out of pocket expenditure, the health insurance mechanism was developed
many years before.
The importance of Health Insurance can be highlighted by the following points.

a) Security against the Financial Burden : Health Insurance provides financial support
against the burden of medical cost for almost all type of illness. Policyholder can easily get
medical services in designated Hospitals. Sometimes a sudden or chronic illness of any family
member that requires long term hospitalization and treatment can break financial backbone
of family . In this case, the financial burden of Health care is shared by the health insurance
plan.
 Contd…..
b) Access to Better Health care : When an individual enrolls for a health care insurance plan, the
insurance company will provide insurance card .
This card is an assurance for health care provider that they will be paid by the insurance company.
Individual receives timely and better health care from the well known medical staff in a well equipped
hospital .

c) Facility of Regular check up : Health insurance allows the insured to get a consultation from specialist
when needed.
The Insurance company also take care of requirement for long term health care and specialized therapy as
and when required. Regular check up saves the unnecessary medical expenditure of insured and insurers.

d) No need to manage additional Health Fund : Some illness like Caner, Kidney failures, heart diseases is
very expensive and requires more money for complete treatment .
In such case, by paying small amount of health insurance premium, lot of people can take advantage in
such cases.
There is no need to manage huge fund for the treatment by taking loan, sale of Property, or spending own
savings .
 Contd…..
e) Provide Social Security : Health Insurance provides social security to every citizens. It
provides financial security which assures free from any kind of difficulties, problems, scarcity,
fear, and anxiety.
Maintaining good health is the primary goal of human being.
The Insurance plan is the best means of social security.

f) Peace of Mind : People can manage small amount of health care expenditure easily.
When the burden of health cost is managed through a health insurance plan then the
breadwinner will be in the stage of tension free and peace of mind.
 Type of Health Insurance

a ) Individual Health Insurance

b) Group Health Insurance

 Individual Health Insurance

Under the individual Health Insurance plan, a policy is issued to a person or a family.
Generally, commercial insurer prefer to sell only group health insurance policies as group
plans have more benefit than an individual plans.

Sometimes insurers need to sell individual health insurance plans also.

There are various reasons for the demand for individual health insurance plans that are to
be addressed by insurers. Some of the major decision are :

a) Retired Persons :The retired person have no option for group health insurance. He
couldn’t continue the group health insurance policy that was purchased by the
office/employer.
After being ex-employee/ retired employee, he/she should purchase individual health policy
if he/she want to continue his insurance plan.
 Contd…..

b) Unemployed Persons : Most of the group health insurance plans are purchased by
employers to their employees.
The unemployed person also needs to purchase a health insurance plan to be secured from
the huge cost of medical expenditures.
During the unemployment period, one needs to choose an individual health plan .

c) Employees who are seeking supplemental health insurance : Group Health plan insurance
is purchased by employers to their employees. Such a plan fulfills only the minimum and
common requirements . In this situation, employees need to buy the special product with
additional benefits by paying the additional premium.

d) People who are Housemaid : Housemaid means people involved in domestic works in
their own home. They cannot join the job for a long time period so they require health policy
of individual plans .
 Contd……..

e) People who are self employed : Some people are self employed like lawyer, Auditor,
doctor, engineer etc .
If they have no staff or have staff but the number is very small for group insurance, they
need to purchase an individual health insurance plan.
 Group Health Insurance

Group Health Insurance is one of the most attractive and widely practiced mechanisms of
employee benefits. Group health insurance provides benefit to employees if a worker
become sick, disabled or dies.
Group health insurance covers a group of people, usually who are the members of a
particular organization, societies, or employees.
It is a contract between the origination and insurer for the benefits of the member of the
organization.

Some of the special and distinguished characteristics of group health insurance plans are as
follows.

a) Single Policy : No matter the number of members in a group insurance plan, a single policy
covers the risk of all members associated with the particular group. The policy is ( agreement
paper ) signed by the insurer and employer or organization and issues the health insurance
card to employees or member of the group .
 Contd……..

b) Cheaper Cost : The administrative cost is shared among the members of the group so that
per unit administrative cost of the policy is significantly lower.
For examples, the cost of preparing a single policy for 500 employees in organization is
obviously lower than the cost of preparing for 500 separate policies.
Group Policy saves various cost like counselling cost, travelling cost, stamp, communication,
papers, file cost and agent commission too.

c) Evidence of Insurability is not required : While underwriting the policy, group risk is
analyzed rather than the risk of the individual member.
The insurer’s concern is whether the group as a whole is eligible for underwriting of health
insurance or not instead of the insurability of any single member within the group.
In this context, the risk of a group needs to assess minutely rather than the risk of an
individual.
 Contd…..

d) Experience rating is used in Group Insurance Plans : If the group is sufficiently large, the
actual loss experience of the group is a major factor while determining the premium charge.
This approach is called the experience rating approach.
 Contributory and Non Contributory Health Insurance Plan

The basis difference between contributory and non contributory plans is premium
contribution by the beneficiary on the policy.

A contributory plan is popular in organization where employees pay premium on monthly

basis deducting from payroll.
Policyholders have regular income source and they can afford the certain premium. In a
government- run health insurance plan, government charges certain amount of premium to
an economically sound population .
The amount of premium to be paid by the citizen may vary based on their income and
economic level.

A Non contributory health plan is also popular plan in many countries. Some countries pay
health insurance premium from the state treasury and beneficiaries enjoy the health service
without any contribution. The health care fund is financed by the state fund which is raised
collecting the tax from the citizens.
 Universal Health Insurance Plan

Universal Health Insurance plan is also known as universal coverage, or universal coverage or
universal care or social health insurance.

Universal health insurance (UHI) is a system that provides health care to all ( Maximum ) citizen
of a particular country.

This is also know as government health plan.

It is financially and technically supported by government and government agencies .

The objective of a plan is to provide affordable Medicare to the citizen.

It helps to reduce the out –of – pocket expenses of citizens and improve the health status of
citizens .

It has following characteristics which are as follows.

 Contd…………

a) Govern by legislation : The plan should be run according to the acts and rules as the plan
is to be financed by the Government fund, tax and public resources.
Most of the countries have framed separate acts to run the UHI Universal Health Insurance )
plan.
In Nepal, Social Health security act governs the UHI. Health Insurance Board is the executive
body that runs the UHI Program.

b)No Means Tests : A mean test is a determination of whether an individual or family is

eligible for government assistance, based upon whether the individual or family possesses
the means to do without that help.
But there is no provision of the means test in UHI . Either they are poor or rich, resourceful
or resource less, all are eligible for the program. Everyone gets equal benefit from the plan.
 Contd…..

c) Equal cost and Benefits : The UHI plan provides equal benefit to all. The cost of insurance
is equal among the beneficiaries having the same economic status and may be different
between the unequal economic status
Benefit and cost are prepared considering the large population rather than segments of the
population.

d) No Impact by adverse Selection : In the Health insurance field adverse selection means
the practice of not buying low-valued health insurance policies by healthy people and buying
health insurance plans or high valued health insurance plans by sick or poor health people.
In commercial insurance, the adverse selection negatively impacts the profitability of the
company but in UHL, the impact is not significant as a large number of the family participates
in the plan as well as providing health care to every citizen is the responsibility of the
government.
 Contd…….

e) Risk Profile does not affect the Premium : The Premium of UHI is not based on the health
profile of the individual, their age, profession and living standard.
Premium is prepared based on the economic capacity of the state, sources of the funding,
aggregate per capita of the country, and the state’s social security policy.

f) Lower Premium : The Premium of UHI is lower than the commercial ( private ) insurance
plan . The reason behind the lower premium of the UHI plan is a) to make the plan affordable
to the poorest segment of the population and b) the number of risk exposure is higher. There
is an adverse relationship between number of risk exposure and rate of premium.

g) More Coverage : Health is the basic need of the citizens. The plan aims to provide
affordable health care to all citizens .
h) Subsidized Plan : In UHI, the entire cost of the health insurance is not charged to
policyholders. Certain cost is managed by the government so that policyholder’s financial
obligation is less than the actual cost of the plan.
 Commercial Health Insurance Plan

Commercial Health Insurance policies are sold by commercial insurance companies.

Commercial insurance prefer to sell group insurance policies rather than individual policies.
Commercial health plan is costlier, the coverage is smaller, products are more customized
considering the need of the customers and it is entirely voluntary in nature.
The feature of commercial health insurance is opposite to the feature of universal health
insurance plans. Some of the characteristic are given below.

a) Actuarial Pricing : The cost of insurance is calculated by a professional Actuary. The

Premium is determined based on historical data like administrative cost, claims, and
expected profit.
The cost of private insurance is quite expensive as all cost need to bear by the policyholder.
 Contd……….

b) Reinsurance Support : Reinsurance is the heart of Insurance business. Without

reinsurance support, private insurance cannot be imagined.
Reinsurance company not only share the risk but also provide technical and other supports to
the insurers so that the business gradually become professional and sustainable.
c) Rejection of Adverse Selection : Private Insurance companies reject the substandard
proposal as they are more aware of the possibility of adverse selection.
In the policy portfolio of the company, a number of sub- standard ( Having higher risk )
policies should be less than standard policy in order to maintain the solvency of the company.
d) Customized Products : Private insurer offer the customized product as per the
requirement of the clients to increase the sales, and to satisfy the customers. The product is
customized based on the guidelines of the regulator and policy of the company.
The company tries to satisfy the demand of the clients as far as possible.
 Type of Commercial Health Insurance Plan

Different types of Commercial Health Insurance Plans are given below.

a) Hospital Surgical Insurance
b) Long Term Care Insurance
c) Disability- Income Insurance
d) Medical Insurance
e) Critical illness Insurance
 Contd……

Hospital – Surgical Insurance : This plan covers hospital expenses include inpatient expenses
like charges for semi private rooms, and miscellaneous hospital expenses such as X-ray, lab
tests and medicine given while in the hospital and surgical expenses, outpatient services and
physician’s visit.

Major Medical Insurance : Major medical insurance plan is more comprehensive and has
higher limits than hospital surgical plans. The limit applies to the entire treatment rather than
for specific service and physician’s visit.

Long Term Care Insurance : A long term care insurance plan is more suitable for those who
are retired from the job, whose age is crossed 60 years, and facing the problem of one or
many diseases.
The Insurer, in such a policy, provide long term care and pays a daily or monthly benefit for
medical care at hospital or home.
This can be again 3 types of plan which are as follows.
 Contd………

a) Facility Only Policy : The policy pays only the expenses for facilities and services provided
by hospitals and nursing homes, and other facilities provided to the insured .

b) Home Health Care Policy : The policy pays the expenses in course of the caring outside
the hospital such as Home health care, adult day care etc.

c) Comprehensive Policy : This combine care in nursing facility and home health care into a
single policy.
 Contd………

Disability - Income Insurance : The definition of ‘’disabled “under Disability Income (DI)
insurance policies varies but generally “ disability “ in the context of DI insurance means that
an individual's impairment prevents him or her from earning an income by working.

Disability Income insurance protects against loss of income due to an illness or injury that
prevents the covered individual from working.
Disability- Income insurance provides income payment when the insured is unable to work
because of sickness or injury.
To prevent over insurance and to reduce moral hazard, most insurers limit the amount of
insurance sold to no more than 60 to 80 percent of insured gross earning .
 Medical Insurance, Medicare and Medicaid

Medical Insurance : It is a plan that cover hospitalization expenses or reimburse medical

expenses.
The plan cover expenses curing the diseases or surgery while the insured is admitted to the
hospital.
Medicare : It provides coverage for age 65 or older and it also covers nonelderly people who
are disabled or have a severe disease like kidneys, cancer etc.
Medicaid : It provides health care coverage for the poor and marginalized people. Age is not
a barrier to participating in this plan.
It is almost free – of- cost programe but sometimes a small co-payment is required.
Actually it is a federal- state programe.
Difference between Medicare and Medicaid is that Medicare is the primary medical coverage
provider for many people of older age and disabled.
Medicaid is for those who has limited income and often a programe of last resort for those
without access to another resources.
 Critical Illness Insurance

Critical Illness insurance ( CII) plan provides protection against the risk of serious illness.
It is also called the dread disease policy.
Critical Illness insurance is a specific type of insurance product in which the insurer promises
to pay a lump sum cash payment if the policyholder is identified with one of the specific
illness on a stated list.
The list of disease may differ from insurance company to company.
 Blue Cross and Blue Shield Plans

.
Blue Cross and Blue Shield (BCBS ) Plans : These are initially separate legal entities.
Blue cross covered hospital bills and related expenses and Blue Shield covered physician’s
and surgeon’s fees and related medical expenses .

However, most plan today combine Blue cross and Blue shield benefits into a single entity.

Today, however, BCBS plans typically pay benefits expressed as promised in the same way
that commercial insurers do.
 Managed Care Organizations

Managed care organizations are another source of group medical expense benefits.

These organizations generally are for-profit organizations that offer managed care plans to
employers.

As stated earlier, managed care is a generic term for medical expense benefits that are
provided to covered employees in a cost-effective manner.

There is great emphasis on controlling costs, and the medical care provided by physicians
is carefully monitored
 Factor affecting Health Insurance Premium

The health insurance premium is determined by professionals ( Actuary ) based on various

factors . Some of the factors are
a ) Use of Alcohol and tobacco
b) Gender
c ) Age
d) Pre –existing medical conditions
e ) Family History
f) Profession
g) Location
 Health Insurance in Nepal

Four different model of health insurance plans have been practiced in Nepal which are as
follows.

1) Private Health Insurance which is sold by commercial insurer to middle and high income
class.

2) Micro Health Insurance plans which are implemented by microfinance institution, co

operatives.

3) Community based Health Insurance which is introduced by government, INGOs and

different health service provider.

4) Social Health Insurance or government-run universal health insurance which is

implemented by Health Insurance Board and covers larger population.
 Universal Health Insurance Plan in Nepal

Universal Health Insurance plan ( also known as social health security programe ) is a flagship
program of government of Nepal which was long –awaited by Nepalese people.

Prior to the introduction of the program, very small scale community health and micro health
insurance schemes were operated by the government, NGOs and private sector.
Most of the programs were launched as pilot program and discontinued within short period.

Due to the various drawbacks and limitations, these program seems not to be universal health
program.

National health Insurance policy was approved by the Government of Nepal in 2014.

Social health security development committee was formed by ordinance in 2015,Feb 9.

After 3 years, the committee was changed into Health Insurance Board ( HIB) as an
autonomous body as per Health Insurance Act 2017.
 Contd………

The act aims to protect the quality health care service rights of the citizens, minimize the
financial risk of the public through prior payment of the health insurance premiums, ensure
the access of the people to the health services by improving the efficiency and accountability
of health service providers .

The objective of the Board is to provide universal health insurance to all citizens of Nepal so
that the health care will be affordable to all people.

The programe generates revenue through membership fees as well as from government
treasury.

The Board of director forms policy, Executive Director implement the plan and programmes.
Board has seven province offices, district offices too.
 Marine Insurance

Marine Insurance is an agreement whereby the insurer undertakes to indemnify the insured, in the
manner and to the extent thereby agreed, against transit looses .

Marine insurance covers the physical loss or damage of ships, cargo, terminals, and any transport by
which the property is transferred, acquired, or held between the points of origin and the final
destination

Marine insurance include Cargo and Hull Insurance .

a) Marine Cargo Insurance : Any loss or damage to goods in transit by rail, sea, road .

b) Marine Hull Insurance : Marine hull insurance covers accidental loss or damage to boats used for
commercial purpose. 'Hull' refers to the main body of the ship.

Notes :Hull Insurance is uses for vessels whereas Cargo Insurance is used for goods.
 Types of Marine Insurance Contracts

There are basically four types of marine insurance contracts in terms of the cost to be paid by
the insured and coverage by a marine insurance policy.

1. Free on Board ( F.O.B Contract ) : The seller is responsible till the goods are placed on
board.
2. Free on Rail : The Provisions are same as in above.
3. Cost and Freight ( C & F ) : Cost and freight are paid by seller.
4. Cost, Insurance and Freight ( C. I.F ) : All these 3 items are paid by seller.
 Types of Marine Insurance Policy

1. Voyage Policy : This policy is issued to cover particular voyage from one port to another
and from one place to another.
The policy mentions the port of departure and port of destination, between which the risks
are generally underwritten.

2. Time Policy : This type of policy provides the insured to cover all types of marine risk for a
specified period of time which is generally 12 months or less. This type of insurance is
generally taken for 1 year but it can be done for less than a year too.

3. Valued Policies : The value of the subject matter is agreed upon between the insurers and
the insured at the time of taking the insurance. Under this policy, the value of loss to be
compensated is fixed.
4. Unvalued Policies : When the value of the policy is not determined at the time of
commencement of risk but is left to be valued when the loss take place .
 Contd……

5. Mixed Policy : Mixed Policy has the characteristic of both voyage policy and time policy.
The insurance company is responsible for both travelling and also for a certain duration.

6. Floating Policy : Floating Policy is designed for regular client . The entrepreneurs who have
to supply the cargo regularly, their cargo might be insured at different periods. It is more
appropriate for those who have to supply cargo on a regular basis.

7. Single Vessel Policy : Single vessel policy is designed for a particular ship ( vessel ) which
covers risk for only one ship.

8. Fleet Policy : It is opposite to single vessel policy. A fleet policy is fit for all ships owned by
a particular shipping company. For example, if a company has ten ships and they are located
in different places, a single policy covers the risk of all ships .
 Ocean Marine Insurance and Inland Marine Insurance

Ocean Marine Insurance :

It provides protection for goods transported over water .

All types of oceangoing vessels and their cargo can be insured by ocean marine contracts; the
legal liability of ship owners and cargo owners can also be insured.

Inland Marine Insurance :

It provides protection for goods shipped on land .

It includes insurance on imports and exports, domestic shipments, and means of transportation
such as bridges and tunnels.
In addition, inland marine insurance can be used to insure fine arts, jewelry, and other property.
 Basic Concepts in Ocean Marine Insurance …

Ocean marine insurance is based on certain fundamental concepts. The following section discusses these concepts and
related contractual provisions.

Ocean marine contracts contain three implied warranties :

 Seaworthy vessel
 No deviation from planned course
 Legal purpose

The ship owner implicitly warrants that the vessel is seaworthy, which means that the ship is properly constructed,
maintained, and equipped for the voyage to be undertaken.

The warranty of no deviation means that the ship cannot deviate from its original course.
However, an intentional deviation is permitted in the event of an unavoidable accident, to avoid bad weather, to save the
life of an individual on board, or to rescue persons from some other vessel.

The warranty of legal purpose means that the voyage should not be for some illegal venture, such
as smuggling drugs into a country.
 Ocean Marine Insurance

Ocean Marine Insurance

Ocean marine insurance is one of the oldest forms of transportation insurance.
Ocean marine contracts are complex, reflecting maritime law, trade customs, and court
interpretations of the various policy provisions.
There are several types of ocean marine contracts.
Some basic coverages include the following:

Hull insurance : It covers physical damage to the ship or vessel . It is similar to collision
insurance that covers physical damage to an automobile caused by a collision.
In addition, it contains a collision liability clause (also called a running down clause ) that
covers the owner’s legal liability if the ship collides with another vessel or damages its cargo.
 Contd……

Cargo insurance :
It covers the shipper of the goods if the goods are damaged or lost .
The policy can be written to cover a single shipment. If regular shipments are made, an open-cargo policy
can be used that insures the goods automatically when a shipment is made.
The shipper is required to periodically report the shipments that are made.
The open-cargo policy has no expiration date and remains in force until it is canceled.

Protection and indemnity (P&I) insurance :

It is usually written as a separate contract that provides comprehensive liability insurance for property
damage or bodily injury to third parties .
P&I insurance protects the ship owner for damage to the ship’s cargo, illness or injury to the passengers
or crew, and fines and penalties.

Freight insurance :
It indemnifies the ship owner for the loss of earnings if the goods are damaged or lost and are not
delivered .
 Inland Marine Insurance

Major Classes of Inland Marine Insurance

Commercial property that can be insured by inland marine contracts can be classified into
the following categories:

 Domestic goods in transit

 Property held by bailees

 Mobile equipment and property

 Property of certain dealers

 Instrumentalities of transportation and communication

 Contd….

Domestic Goods in Transit :

Domestic goods may be shipped by a common carrier, such as a trucking company, railroad, or airline, or by the company’s own
trucks.

The goods can be damaged because of fire, lightning, flood, earthquake, or other perils.

They can also be damaged from the collision, derailment, or overturn of the transportation vehicle.
These losses can be insured by one of the various inland marine policies.

Property Held by Bailees :

Inland marine insurance can be used to insure property held by a bailee.

A bailee is someone who has temporary possession of property that belongs to another .

Examples of bailees are dry cleaners, laundries, and television repair shops. Under common law, bailees are legally liable for
damage to customers’ property only if they or their employees are negligent.

However, to ensure customer goodwill, many bailees purchase bailees customers insurance that covers the damage or loss to
customers’ property while in the bailee’s possession regardless of fault, normally from certain named perils.
 Contd….

Instrumentalities of Transportation and Communication :

It refers to property at a fixed location that is used in transportation or communication .

Inland marine insurance can be used to cover bridges, tunnels, pipelines, power transmission
lines, radio and television towers, and similar equipment for loading, unloading, or
transporting.

For example, a bridge may be damaged by a flood, a television tower may be damaged in a
windstorm.

These losses can be insured under inland marine contracts.

 Contd….

Mobile Equipment and Property :

Inland marine property floaters can be used to cover property that is frequently moved from
one location to another, such as a tractor, crane, or bulldozer.
Also, plumbing, heating, or air conditioning equipment can be covered while being transported
to a job site or while being installed.

Property of Certain Dealers Inland marine insurance is also used to insure the property of
certain dealers.
Specialized inland marine policies or inland marine “block” policies are used to insure the
property of jewelers, and dealers in diamonds, fine art, cameras, and musical instruments, and
other dealers.
Most of these policies provide coverage on an open-perils (“all-risks”) basis.
 Fire Insurance

Fire insurance : It covers losses caused by fire and lightning; it is usually sold as part of a
package policy.

Fire Insurance is also subject to certain special principals evolved under common law.
Whether stated in the policy or not, the common law principles automatically apply to fire
insurance contracts. These are principals of utmost good faith, insurable interest, subrogation
and indemnity.
 Types of Fire Insurance Policy

A) Valued Policy : If the valuation of the property is quite difficult, the insured and insurer
mutually agreed upon the certain value of the property and records on the policy.

B) Specific Policy : The policy provides the compensation up to the specific amount .

C) Average Policy : The Policy containing an “ Average Clause “ is called average policy.

D) Comprehensive Policy : This Policy undertakes full protection against different risk like
burglary, riot, theft, lightning etc . The policy is also termed as “ All” in policies.
 Risk Faced by Business Firm
Business firms also face a wide variety of pure risks that can financially cripple or bankrupt the
firm if a loss occurs. These risks include
(1) Property risks,
(2) Liability risks,
(3) Loss of business income
(4) Other risks.

Property Risks : Business firms own valuable business property that can be damaged or
destroyed by numerous perils, including fires, earthquakes, and other perils.
Business property includes plants and other buildings; furniture, office equipment, and
supplies; computers and computer software and data etc
 Risk Faced by Business Firm
Liability Risks :
Business firms today often operate in highly competitive markets where lawsuits for bodily
injury and property damage are common.
The lawsuits range from small nuisance claims to multimillion-dollar demands. Firms are sued
for numerous reasons, including defective products that harm or injure others, pollution of the
environment, damage to the property of others, injuries to customers, discrimination against
employees and sexual harassment, violation of copyrights and intellectual property, and
numerous other reasons.
In addition, directors and officers may be sued by stockholders and other parties because of
financial losses and mismanagement of the company.
 Contd……..
Loss of Business Income :
Another important risk is the potential loss of business income when a covered physical damage
loss occurs.
The firm may be shut down for several months because of a physical damage loss to business
property because of a fire, tornado, earthquake, or other perils.

During the shutdown period, the firm would lose business income, which includes the loss of
profits, the loss of rents if business property is rented to others, and the loss of local markets.

In addition, during the shutdown period, certain expenses may still continue, such as rent,
utilities, leases, interest, taxes, some salaries, insurance premiums, and other overhead costs.

Fixed costs and continuing expenses that are not offset by revenues can be sizeable if the
shutdown period is lengthy.
 Contd……..
Other Risks Business firms must cope with a wide variety of additional risks, summarized as
follows:
Crime exposures : These include robbery and burglary; shoplifting; employee theft and
dishonesty; fraud and embezzlement; computer crimes and Internet-related crimes; and the
piracy and theft of intellectual property.

Human resources exposures : These include job related injuries and disease of workers; death or
disability of key employees; group life and health and retirement plan exposures; and violation of
laws and regulations.

Foreign loss exposures : These include acts of terrorism, political risks, damage to foreign plants
and property, and foreign currency risks.
 Contd……..
Intangible property exposures : These include damage to the market reputation and public
image of the company, the loss of goodwill, and loss of intellectual property.
For many companies, the value of intangible property is greater than the value of tangible
property.

Government exposures : Federal and state governments may pass laws and regulations that
have a significant financial impact on the company.
Examples include laws that increase safety
standards, laws that require reduction in plant emissions and contamination, and new laws to
protect the environment that increase the cost of doing business.