Who Faces Risks?

Risks as we have seen are inevitably a part of our lives and every individual or business/ Industrial house is exposed to the possibility of loss.

The risks faced by the individual or family and the Industry are common but they differ in nature and the extent of loss.

It will be simpler if we discuss the risks faced by the Individual or family separately from the risks faced by the Business houses/ Industries.

1. Family Risks

The term family for all practical purposes henceforth includes an individual who may be living with the family or separately.

Personal Risk

Death

When a person dies the income that he earns with his efforts stops. When death will strike is uncertain and the risk is there at any age. In addition to the loss of income when the head of family dies the family is subjected to expenses on last illness, funeral expenses and settlement of estate not to mention the mental and social burden which cannot be measured in monetary terms but is without doubt very high.

Disability

This may not be as serious as death but it has definite impact on the income. Expenses will increase due to medical care for the disabled family member. Poor health as a result of an accident or illness is one of the most important risks which a family has to face.

Retirement

A person may survive pre-mature death or disability but he still faces loss of income to maintain a reasonable standard of living during retired lifetime.

Unemployment

This risk is also an important one for every family. The current industrial & economic scenario is not very conducive for employment and a lot of companies industrial houses are downsizing, cutting down on the labour force. Voluntary Retirement Scheme and Retrenchment are the order of the day.

Property Risk

All families in addition to the risk of loss of income or increased expenses also face the risk of loss to property. Loss to property results not only in reduction of Assets but also in loss of income. Examples of property risk are innumerable but to illustrate the extent and nature some are being mentioned here. Homes may be destroyed by fire, floods and storms; cars may be damaged in an accident, burnt, be lost, stolen or destroyed; Savings may be lost in stock market crashes or failure of banks.

Liability Risk

An individual because of his negligence may become responsible for injury to the person or damage to the property of others for which he has to pay compensation and expose the family to such a risk. With a greater awareness amongst the common man the liability risks is ever increasing and the courts in their judgements appreciating the value of human life and right are awarding huge amounts as compensation for which any individual or family can be beyond imagination and intolerable.

2. Business Risks

As we have already said, businesses also face the same risks as the family but in a different manner and the magnitude is bigger.

Personal Risks

The death or disability of an employee who is instrumental in the successful running of the business enterprise can result in loss of business and profits. If a partner in a partnership concern dies, the partnership is dissolved and the surviving partners can suffer loss of Income. In the case of disability of a key employee or partner the firm may be burdened with his medical expenses and may be obliged to continue paying his salary. Firms also to have face the risk of the death or injury to their employees and the burden, which has been transferred to them by law or by contract. The workmen compensation Act 1923 is an example whereby the financial burden resulting from disablement or deaths of an employee is placed upon the employer.

Property Risk

Business houses suffer direct and indirect losses due to property risk. Direct losses can be as a result of various perils much the same as for the family such as destruction of building, machinery and stocks in fire or due to other perils such as storms and flood. In addition dishonest employees may steal from the firm not only material goods but also ideas causing great loss. In this competitive era business houses spend a lot of money on research and development of new concepts but if these are stolen and handed over to other firms in the same field the returns expected from these investments are lost causing great loss. Equipment and property may be damaged or destroyed by rioters or employees on strike. Strike also cause loss of production.

These direct losses may only be a part of the total loss because apart from direct losses due to property damage the business houses also have to bear the indirect loss incurred due to stoppage of operations, disruption in production (Loss of profits) that they may have to face.

Liability Risk

As in the case of family business, firms also are liable to others for bodily injury or property damage but the exposure is greater than the family as the firm is responsible for the acts of a large number of employees as also the products or services that it deals in.