Chapter Sixteen

Risk Management,
Insurance, and
Crime Prevention
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 Learning Objectives, 1

• Define risk and explain some ways of coping

with it.
• Explain what insurance is and show how it
can be used to minimize loss due to risk.
• Discuss some guides to be used in choosing
an insurer.

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 Learning Objectives, 2

• Show how crime prevention can reduce risk

and protect people and assets.
• Discuss some techniques for safeguarding
against theft.
• Describe how to safeguard employees with
preventive measures.

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 Risk and Its Management

• Risk management is the process of

conserving earning power and assets by
minimizing the shock from losses.
• Is the answer to losses after fire, natural
disasters, Remodeling, street improvements:
goods damaged, lost or stolen in transit, bank
refusal to renew loans: nonpayment of
accounts receivable: a rogue’s gallery of
lurking perils.
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 Types of Risk
Pure risk Speculative risk
• The uncertainty that • The uncertainty that a
some unpredictable voluntarily undertaken
event will result in a risk will result in a loss.
loss.

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 Ways of Coping with Risk, 1

• Risk avoidance
• Risk prevention
• Risk transfer
• Risk assumption

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 Ways of Coping with Risk, 2

• Risk avoidance is refusing to undertake an

activity when the risk seems too costly.
• Risk prevention (loss control) is using various
methods to reduce the possibility of a loss
occurring.
• Provide first-aid office, driver training, and
work safety rules.
• Hire security guards.

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 Ways of Coping with Risk
Risk transfer
• Is shifting a risk to someone outside your company.

Insurance
• Is provided by another company that agrees, for a
fee, to reimburse your company for part of a loss.

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 Insurance for Your Business
Risk assumption (self-
insurance)
• Is setting aside funds to
meet losses that are
uncertain in size and
frequency.

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 How to Determine Whether You
Need Insurance, 1
To determine how to handle business risks, ask
yourself, what will happen if:

• I die or suddenly become incapacitated?

• A fire destroys my firm’s building(s), machines, tools
and equipment, and slash or inventories?
• There is theft by an outsider, a customer, or an
employee, or an employee embezzles company
funds?
• My business is robbed?
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 How to Determine Whether You
Need Insurance, 2
• A customer is awarded a sizable settlement after
bringing a product or accident liability suit against
me?
• Someone, inside or outside the business, obtains
unauthorized information from my computer?

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 Types of Insurance Coverage, 1

• Fire with extended coverage endorsement

• Business interruption coverage
• Casualty
• Professional liability (malpractice)
• Worker’s comp
• Key person
• Fidelity and surety bonds

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 Types of Insurance Coverage, 2
Coinsurance Product or service
• Having the business buy liability insurance
insurance equal to a • Protects a business
specific percentage of from losses resulting
property value. from the use of its
product.

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 Reducing Worker’s Comp
Premiums
• Involve employees in safety matters.
• Establish an open, two-way communication
system.
• Make participation companywide.
• Make a big deal of the safety awards that are
given.
• Keep the program exciting.
• Be especially watchful during high-risk
periods.
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 Types of Insurance Coverage
Business insurance
• Describes the use of life and disability insurance to
solve financial issues of businesses and business
owners.

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 Business Insurance, 1

• Protection of owner or dependents against

loss from premature death, disability, or
medical expenses.
• Provision for the continuation of a business
following the death of an owner.
• Economic loss to a business when a key
employee dies.

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 Business Insurance, 2

• Disposition of a business owner’s interest

upon the death or separation from the
business.
• Attraction and retention of valuable
employees.
• Rewarding faithful employees.

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 Some Red Flags to Look For in
Choosing an Insurer, 1
• An agent who delays giving answers, fails to
hand over a policy, or neglects to provide
proof of endorsements.
• Routine answers such as: “Don’t worry about
it, it’s a computer glitch.”
• A delayed premium refund.
• A hand-delivered policy instead of one sent
directly from the company.

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 Some Red Flags to Look For in
Choosing an Insurer, 2
• Delay tactics to encourage you into a lower
settlement.
• Attempts to minimize your damages to save
the company from having to pay on the claim.
• Request by the adjuster to keep the claim or
proposed settlement a secret.
• An offer of a new policy to replace one that is
flawed.

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 Financial Characteristics and
Flexibility of Insurer
Use the following criteria:

• Financial stability and safety.

• Specialization in your type of business.
• Ability to tailor its policy to meet your needs.
• Cost of protection.

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 Services Rendered by the Agent
Choose an agent who is willing and able to:

• Devote enough time to your individual problems to

justify the commission.
• Survey exposure to loss.
• Recommend adequate insurance and loss
prevention programs.
• Offer alternative methods of insurance.

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 Crime Prevention to Protect
People and Assets
• Adopt a zero-tolerance policy.
• Screen carefully.
• Train supervisors to recognize personality
changes and warning signs.
• Defuse disputes.
• Check and double-check security.
• Terminate with care, then change the locks.

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 Armed Robbery

• Several measures can be taken to reduce the

chances of being robbed.
• They include modifying the store’s layout,
securing entrances, using security dogs,
controlling the handling of cash, and
redesigning the surrounding area

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 Theft

• Theft by outsiders, usually known as

shoplifting includes high-tech use of copied
bar codes, as well as sneaking goods out.
• Civil Restitution is demanding payment by
shoplifters or their parents, for items taken.
• Theft by employees, often referred to as
shrinkage, from pens and paper clips to aids
removing truckloads of goods.

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 Sources of Inventory Loss in the
Global Retail Industry

Jump to Sources of Inventory Loss in the Global Retail Industry, Appendix

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 Techniques for Preventing Theft

• Wide-angle and one-way mirrors to observe

employee or customer behavior.
• T V cameras, tied to monitors, to observe a
large area of the store.
• Electronic noise activators to warn of
unprocessed merchandise leaving the store.
• Paper-and-pencil tests of a potential
employee’s honesty.
• Security guards.
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 Employee Theft

• Employee theft and shoplifting accounted for

a loss of over 35.6 billion dollars for United
States retailers in 2010.

Jump to Employee Theft, Appendix

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 White-Collar Crime
White-collar crimes
• Those committed by
managerial,
professional, and
technical employees.

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 Types of White-Collar Crimes

• Falsification of accounts.
• Fraudulent accessing and manipulating of the
computer.
• Bribing of purchasing agents and other
officials.
• Collusion that results in unrecorded
transactions.
• Sale of proprietary information.
• Sabotage of new technology.
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 Ways to Minimize
White-Collar Crime, 1
• Track the extent and cost of corporate crime.
• Increase corporate crime prosecution
budgets.
• Ban corporate criminals from government
contracts.
• Crack down on corporate tax avoidance.
• Restore the rights of defrauded investors

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 Ways to Minimize
White-Collar Crime, 2
• Regulate derivatives trading.
• Expand disclosure.
• End conflicts of interest on Wall Street.
• Fix the pension system.
• Foster a national discussion on corporate
power.

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 Safeguard Employees

• Employees are a valuable resource you should

protect through proper safety procedures.
• In addition, employees must work safely.
• Preventative measures include guards offer moving
tools, devices to keep hands away from moving
parts, protective gear, warnings of unsafe areas.
• The Occupational Safety and Health Administration
has guidelines and useful information
.

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 Appendices

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Copyright
reserved
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 Sources of Inventory Loss in the
Global Retail Industry, Appendix
The data from the pie chart can be tabulated as follows:

Source of Inventory Loss Percentage Lost

Shoplifting 43.2
Employee theft 35
Administrative error 16.2
Vendor fraud 5.6

Jump back to Sources of Inventory Loss in the Global Retail Industry

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 Employee Theft, Appendix
There are four bags of different sizes symbolizing the different
amounts of theft. The largest bag reads 17.2 billion dollars
employee theft. A slightly smaller paper bag reads 13.7 billion
dollars shoplifting. A smaller handbag reads 2 billion dollars
administrative error. A small gift box reads 2.7 billion dollars
vendor fraud.

Jump back to Employee Theft

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