Insurance in Business or Industries

Learning Outcomes

1. Risks faced bybusiness enterprises
2. Shopkeepers’ Package Policy

1. Risks faced by business enterprises

a. Business enterprises

In the previous chapter we have seen that insurance protects against misfortunesthat affect wet a person and his assets. Insurance can also help out in protecting large and small industries, ships, aero planes,factories, hotels or even small shops.

In the world around us, we see a lot of small, medium and large enterprises. The word i" ‘enterprise’ usually means a complex company, business or project. Some enterprises are worth crores of rupees operating across the country and are run by the Governmentor by large business houses while somearelocally run small businesses. Enterprises may do various activities like producing things like medicines, furniture, manufacturing equipment like vehicles, televisions, processing like making jam out of fruits, pickles or marketing goods and services etc. Mostof the enterprises that we see around us are usually ‘small enterprises’ which dotheir businesses in a small waylocally.

b. Risks faced by business enterprises

Let us look at the enterprises that we see nearus. A hotel, a bakery or a provision shop is set up by an entrepreneur/businessman by investing his moneyfor the purpose of earning money. However,in this process, he has to face various risks.

1. Business related risks: Itis possible that the food prepared does not taste good and no one comesto eat in the hotel; or customers may developaliking for some othertype of food and may not come to the bakery to buy cakes or biscuits: or nobodyvisits the provision store when there is a weekly market nearby and provisions are available at low prices. These are businessrelated risks that an entrepreneur can expect and take caution against as part of building his business. He can always try to compete with others in the market by making better food, reducing prices, making new varieties of cakes etc., so thathe attracts more customers for his products. Such risks are normal business risks and are generally not insurable.

Now,let us look at othertypesof risks that he is facing.

2. Risks from natural calamities: The hotel may be destroyed by an earthquake, the bakery could be washed awaybyfloods and a fire can destroy the provision shop. Thoughhe is all along exposed to such risks which can ruin him completely, the entrepreneur can do practically nothing about these asall these are events beyond his control. Insurance can take care of such risks that are chance events beyond human control.

The interesting part about these events is that though these can happen anytime, these may not happen to one enterprise all the time. Rather, though all shops are always exposed to the risk of an accidental fire, in the normal case,thefire will actually strike only a very few shopsin a small town and that too only once in a long period of time. Such risks are always there but their occurrence would be unexpected or accidental; and if the event happens,the loss can be defined and measured.

Insurance takes care of the secondset of risks that are unpredictable or chance events.In the context of a shop, insurance works when the risks are shared by a large numberof shopkeepers. By the system of insurance, the risks of a large number of similar shopkeepers exposed to same type of risks get pooled together. All of them contribute small amounts towards insurance. If any of the shopkeepers are affected by the insured risk, their loss is compensated from the pooled contribution. In operation, an insurance company takes over the specific risks of a large number of shopkeepers and collects premiums from all of them. The insurance company takes care of the fund and when the loss occurs, pays the value of the loss to the shopkeeper.

By their own studies, insurers know the kind ofrisks different categories of enterprises are exposed to. They have accordingly devised certain package policies for the ready use of certain groups— there are package policies for industries, factories, commercial premises,farmers, householders and shopkeepers etc.

2. Shopkeeper's Package Policy

Shopkeepers' Package Policy is designed to insure all the insurable risks of a large number of shopkeepers.It fie provides wide coverage against various accidental happenings like fire, earthquake, lightning, I lood, burglary etc. The policy gives coverfor the building, its contents, money kept in the shop etc. Based on the & specific requirements of shopkeepers and on payment § of additional premium, they can take additional coverage for others risks like the following:

1. Losses dueto dishonesty by employees
2. Losses due to incapacity to do normal business activity soon after aloss/ damage to the shop /building due to fire, burglary etc.
3. Damageto the neonsign and glow sign boards of the shops
4. Legalliability to any third party arising out of insured’s business.

The cost of policy or the premium is determined on the basis of the type of insurance policy and cover selected. It broadly depends uponthe:

1. Perils (specific events that can cause a loss) covered
2. The coverage opted
3. The value of the items covered
4. These ductibles (the part of the loss that the insured agrees to bear himself) opted
5. Construction of building, nature of occupancy
6. The location of property and contents of the shop etc.

Case Study: Industrial disaster and Insurance protection A Story of Industrial Disaster vis-a-vis Insurance Protection

Union Carbide India Ltd (UCIL) established a pesticide manufacturing plant in Bhopal during 1970s. Pesticides are chemicals to protect crops from getting damaged by pests. These chemicals are highly poisonous. On the night of December, 3, 1984, a poisonous gas, namely, Methyl Isocyanate (MIC) started leaking from a tank at UCIL Bhopal plant. Leakage of this gas claimed approximately 3800 lives as per official records and thousandsofpeople becamesick and suffered from several health related problems.

As we know, humanlife is invaluable and the true price ofa life cannot be compensated. But the company was legally bound to pay compensation to the kith and kin/dependents of the victims who died dueto this major event. UCIL was made to compensate the damages and they had to spend a huge amount of money on account of the legal battle for the damages payable due to happeningofthis event.

As apart of risk management, having insurance helps to make good the losses. Insurance also helps to assess the risk which indirectly ensures adequate preventive measures needed as precautions for avoidance of such accidents. In case of the unfortunate happening of the event, by having insurance, losses can be minimized as consequent financialliabilities could be transferred to the insurer.

Eventually, the chain of events led to the introduction of Public Liability Insurance Act in India. The main objective of the Public Liability Insurance Act, 1991 is to provide for damages to victims of an accident which occurs as a result of handling of any hazardous substances. The Act applies to all owners associated with the production or handling of any hazardous chemicals.

In such a situation, the company's Workmen's Compensation Policy takes care of the liabilities of the company to its employees. Under liability insurance, the insurance company would similarly take care of the company’sliability to the public.

Further, if the 3800 people who died hadlife insurance policies, their families would have received somefinancial benefit to tide over the financial loss due to their sudden death. Personal accident policies would have given compensations for death and disabilities as well. If the thousandsof sick people had health policies, their treatment costs would have been met by insurers.