Assignment on Insurance and Risk Management

Risk management : Risk is used to describe any situation where there is uncertainty about what automobile will occur life is obviously very risky. Risk management process involves several key steps which can minimize the risk and that’s increase business value. Risk management decisions must be made before losses are known. It is to minimize the cost of risk. There are two types of risk management :
i. Individual Risk management
ii. Business Risk Management

1. How Individual Risk management increase social welfare?
Ans: Individual Risk management :
The cost of risk concept also applies to individuals risk management decisions. For example when choosing how to management the risk of automobile accidents, at first he/she can driving less at night are taken some precaution before driving. Risk management for individuals can be viewed as minimizing the cost of risk and thus managing the welfare of individuals.

Society Welfare :
Most people are averse to risk. Risk averse people generally are willing to pay to reduce risk. For example: Risk averse people buy insurance to reduce risk. As a result he/She can making more concentrate on his/her beeriness. and can earning more profit. That will manage social welfare.

2. How social welfare conflict with individual risk management?
Conflict : As mentioned earlier, most people are averse to risk. If there is some advantage for gaining toward them and at a some time there is also lasses some amount. He/She will not take these advantage. But others who is riskier will take this advantage. So this matter could create problem for social welfare.

3. How Business Risk management increase social welfare?
Business Risk Management : Business risk management is concerned with possible reductions in business value from any source. Such as many business achieve internal risk reduction through diversification and through investments in information to improve forecasts of expected cash flows.

Social Welfare :
Risk management by businesses can minimizing the total cost of risk for society. minimizing the total cost of risk in society would minimize the value of social resources. Minimizing the total cost of risk for society produces an efficient level of risk. Efficiency requires businesses to pursue activities until the marginal level it equals the marginal cost, including risk related costs. If managing the value of resources by minimizing the cost of risk, it make the total size of the economic “Pie” as large as possible. Good economic position allows greater opportunity for governments to transfer income from parties that are able to pay tax to parties that need assistance. More over many businesses could avoid the risk completely by not hauling toxic chemicals and instead hauling nontoxic substances such as clothing or, apart from cholesterol, cheered.

4. How social welfare conflict with Business risk management?
Ans :
Conflict : The main problem of business risk management is that if the cost to the business differed from the total cost to society, business value maximization generally will not minimize the total cost of risk to society. Moreover government has no regulation of safety and workers compensation law, the consumers, workers and other parties are harmed by these.

Q: What is Risk Management?
Ans : Today we are surviving in a competitive & technically wide sprade of industrial circumstances. In this civilized world, people & many other business firms are doing many risky activities for their own profit.
Risk management is now a very important & much wider in individual & business environment. For earning more profit they involve in risky activities. More over, we know that, the major fact is risk can’t be eliminated but it can be minimized. In these sense, risk management involves some technical steps that may help to control on minimized the cont of risk. Normally there are two types of risk management

1. Individual risk (Which consist some fundamental formula as minimizing the cont of risk & thus minimizing the welfare of individuals).
2. Business risk management (which concerned with possible decreasing of business value from any source).

Q. How individual risk management create social welfare ?
Ans: Social welfare has strongly elated with risk management & risk management works for minimizing the cost of risk. One portion of risk management concept is individual risk management decision. In individual risk management which related with a individual cost of risk, he/she can either averse the risk for normal profit on take the riskiest opportunities for supernormal profit. individuals are a part of society. If he/she can take advantage against their personal resources or has more opportunities to reduce the risk (Such as insurance policy, effective tax rate), that will, maximize welfare of individual.
Q: How social welfare conflict with individual risk?
Ans: In case of social welfare, individual risk management may create some problems also. While any special individual are able to makes supernormal profit through out risk management process, others are being generated from industrial alternatives. Suppose any person can earn $1,000 from spectacular share market or loose same amount. As every individual person aren’t able to put off this option. So in a individual risk management process doesn’t treated equally.

Q. How business risk management increase social welfare?
Ans: In a business risk management process, the cost of risk fan device through achieving the efficiency position which requires the marginal benefit. equals the marginal cost, including risk related costs. As minimizing the cost of risk, it can minimize the total size of economic “pie” On the other hand, as increment of better economic position govt. transfer income from parties that are able to pay taxes that need assistance which effect on the better of welfare for society. There are many classes persons are dwelling in the society. Being other things constant, according to business risk management on industrial authority make any risky activity that will harm strangers.
Q: How Social Welfare conflict with Business Risk Management?
Ans: Business risk management can create some major problems for society. One of the fundamental problem is the higher managing tax rates which may cause some disappointment in work place, If social cont consists for social welfare are distinct from the cost to the business, business value maximization generally will not minimize the total cost of risk to society.