Text 4. Risk management and insurance

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Every day the costs necessary to start up and run any kind of business are increasing. The risk of failure, bankruptcy and fi­nancial losses are also increasing. How to manage the problem? Speaking about risk management, one may consider this issue to be the major one among the other business issues. Some years ago the best way to protect against the risk was to buy insurance. Nowadays, insurance is rather expensive cost, thus people in business have to search for the other sources of managing risk.

Risk, in general, refers to the chance of loss, the probability of loss and the amount of possible loss. One may differentiate between speculative risk and pure risk. Speculative risk involves a chance/of either profit or loss. An enterprise may earn addi­tional funds through buying new machinery, considering options, making decisions to decrease the probability of loss. One takes speculative risk on the chance of making a profit. Pure risk is defined as the threat of loss with no chance for profit. Business firms deal with pure risk very often. To reduce it the firms might self-insure against the risk, avoid the risk or buy insurance to cover the risk. Reducing the risk is possible through purchasing and using safety devices to protect employees from possible ac­cidents, through providing health education and equipment maintenance programs. Self-insurance guarantees managing amount of loss to those companies that cannot afford conven­tional property or casualty policies. Firms having huge facilities, find self-insurance a good way out in difficult situation. The chance for risk is always present. Nevertheless, some companies try to avoid risks by not being involved in hazardous activities.

There are two major types of insurance companies: a stock insurance company and a mutual insurance company. A stock insurance company is owned by stockholders, just like any other stock company. A mutual insurance company is owned by its policyholders. It issues participating insurance, meaning that any excess profits go to a policyholder or investor in the form of dividends.

Insurance policy stands for a written contract between the insured individual or institution and the insurance company itself that promises to pay for all or part of a loss. The law of large numbers says that if a large number of people or organisations are subject to the same risk, a predictable number of losses occur over a given period of time. As soon as an insurance company determines these figures it can determine the premium (the fee charged by an insurance company) which might be rather high as to cover possible losses. Rule of indemnity states that an insured person or organisation cannot collect more than an actual loss from an insurable risk. Coinsurance clause requires businesses to perform insurance equal to a certain percentage of a building's actual value. A deductible clause explains that the insurance company has to pay only the part of a loss exceeding a figure in a policy.

There is a list of insurance policies, a firm can buy: 1) fire (insures from fire, theft, different natural disasters); 2) auto and truck (insures from property damage, collision, bodily injury, theft, vandalism etc.); 3) marine and aviation (insures boats, planes and their cargo); 4) liability (insures from legal claims from the firm's products or operations); 5) workers compensation (protects from injuries sustained on the job); 6) criminal loss (insures from theft and losses while breakings); 7) credit (covers from non-payment by consumers); 8) business interruption (insures from the firm being closed); 9) health (it is a firm who pays the cost of employees' insurance); 10) life (protects against the loss of key executives and employees); 11) farm insurance (protects property and liability risks on farms).

Most attention should be paid to life insurance presupposing insurance for executives and employees. Some life insurance plans include group life insurance, owner or executive insurance and retirement and pension plans. Rates for group insurance are lower than for individual one which saves a lot of money. An owner insurance enables the firm to pay off bills and keep on with performance in the case of an executive's death. It also guarantees a safety of a job for employees. Retirement plans should provide employees with the ability to get financial support after retiring from a job.

Risk management has become one of the most important and dynamic functions in business. People who deal with the risk and compile appropriate plans and efficient programs to cover the risk at a minimum cost are referred to as risk managers. The future career development is huge. Life insurance market has a great potential, because insurance companies appear and broaden day after day and demand insurance agents. These financial advi­sors sell mutual funds together with insurance policies.

Another job one may occupy in risk management is insurance adjuster. It stands for a person who calculates the extent of a loss. These people come, estimate the losses and state the sum of money to be reimbursed. Actuary representing the other profes­sion in the sphere of risk management predicts future possible losses on the basis of historical data.

There are many careers in risk management proposing versatile opportunities to get into business. Try one and reach for suc­cess.

Текст 5. What Is a Company?

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You've probably seen ads in magazines and on television sponsored by names such as Xerox, IBM, General Motors, and Exxon. These are huge companies that hire thousands of workers to produce goods or services for you, the consumer. Thousands of companies make products or provide services for you. A company is an organized group of people doing business.

Every company is in business to sell products and to make a profit. Remember that one resource needed to make things is money, or capital. In order to get a company started, someone has to invest (put in) money to start the company. Then, once the company is organized, you have to have some way to run it. There are different ways to manage (run) a company.

Proprietorship: A proprietorship is a business owned by just one person. It is the easiest type of business to form because you as the owner have complete control over everything. Besides that у you get to keep all the profits.

Partnership: A business owned by two or more people is a partnership. It is also easy to form. The partners share the profits. An advantage to being in a partnership is that you can share the workload and responsibilities.

Corporation: A corporation is a company organized and owned by stockholders. A stockholder is anyone who buys a share in a company. While you own the stock, you will also receive what's called a dividend. A dividend is a payment you get as part owner of the company. Sometimes corporations start out as proprietorships or partnerships. They have a very structured organization because there are so many people involved. The corporate structure includes the following:

Stockholders: People who have bought shares in the company. Stockholders hold an annual meeting. At the annual meeting, they elect the board of directors for the next year. Board of Directors: Board members are elected. They set company policies and determine the main company goals. They report how the company is doing to the stockholders. The board also hires a company manager or president to run the company. Management: These people run the company. They have to be good leaders and hard workers to make the company successful. Management people have to pick the products the company will make, decide how to raise money to buy or rent buildings, where to get raw materials, and how much to pay workers. Administration: The people in administration carry out the decisions made by the management department. There are many other workers in a company, too. As you learn what each department does, think about what jobs you would like to do or would feel most qualified to do. These are some of the main departments in most companies.

Human Resources: In some companies, this department is called Personnel. This department makes sure that the people who have the skills needed for certain jobs are hired. If extra training is needed, the Personnel department makes sure workers get the training. The Human Resources department also makes sure you are rewarded if you are a good worker. Usually you are advanced to a position with higher pay.

Research and Development Department (R& D): The research and development department improves existing products or designs new products that people really want. Companies depend on R& D departments to find efficient ways to make products so that they can save money and make a profit.

Production Department: The production department is in charge of actually making the products for the company. The production workers must turn materials into parts for products and then assemble the products. The production department usually plans a production system to make sure each job is done as accurately, quickly, and safely as possible. A mistake in production caused by poor planning can cost a company a lot of money or slow production down. The production department has to plan ahead so there is no downtime, or stop in production.

Marketing Department: The job of the marketing department is to sell the company products. Sometimes they conduct consumer surveys to find out what people want, how much they are willing to pay for a product, and who would probably buy that product. The marketing department must also have a marketing plan for promoting and selling the product.