Business Management Chapter 23 Vocabulary

Business risk

Possibility of losses associated with the assets and earnings potential of a firm

Market risk

Uncertainty associated with an investment decision

Pure risk

Uncertainty associated with a situation where only loss or no loss can occur

Real property

Land and anything physically attached to the land, such as buildings

Personal property

Any property other than real property, including machinery, equipment, inventory, and vehicles

Replacement value of property

Cost of replacing personal property and rebuilding real property at today's prices

Actual cash value (ACV)

Insurance term that refers to the depreciated value of property

Peril

Cause of loss, either through natural events or through the actions of people

Direct loss

Loss in which physical damage to property reduces its value to the property owner

Indirect loss

Loss arising from an inability to carry on normal operations due to a direct loss of property

Workers' compensation legislation

Laws that obligate an employer to pay employees for injury/illness related to employment, regardless of fault

Indemnification clause

Contractual clause that requires one party to assume the financial consequences of another party's legal liabilities

Torts

Wrongful acts or omissions for which an injured party can take legal action against the wrongdoer for monetary damages

Reasonable (prudent person) standard

Typical standard of care, based on what a reasonable or prudent person would have done under similar circumstances

Compensatory damages

Economic/noneconomic damages intended to make the claimant whole by compensating the claimant for any injuries/loss arising from the negligent action

Economic damages

Compensatory damages that relate to economic loss, such as medical expenses and loss of income

Noneconomic damages

Compensatory damages for such losses as pain and suffering, mental anguish, and loss of physical abilities

Punitive damages

Form of punishment beyond compensatory damages that intends to punish wrongdoers for gross negligence or callous disregard and to have a deterrent effect

Proximate cause

Negligent act that is the clear cause of damages sustained

Manufacturing defect

Defect resulting from a problem that occurs during the manufacturing process, causing the product to subsequently not be made according to specification

Design defect

Defect resulting from a dangerous design, even though the product was made according to specifications

Marketing defect

Defect resulting from failure to convey to the user that hazards are associated with a product or to provide adequate instructions on safe product use

Personnel risks

Risks that directly affect individual employees but may have an indirect impact on a business as well

Risk management

Ways of coping with risk that are designed to preserve the assets and earning power of a firm

Risk control

Minimizing potential losses by preventing, avoiding, and/or reducing risk

Loss prevention

Keeping a loss from happening

Loss avoidance

Choosing not to engage in hazardous activities

Loss reduction

Lessening the frequency, severity, or unpredictability of potential losses

Risk financing

Making funds available to cover losses that cannot be eliminated by risk control

Risk transfer

Buying insurance or making contractual arrangements that transfer risk to others

Risk retention

Financing loss intentionally, through a firm's cash flows

Self-insurance

Designating part of a firm's earnings as a cushion against possible future losses

Named-peril approach

Identifying the specific perils covered in a property insurance policy

All-risk approach

Stating in a property insurance policy that all direct damages are covered except those caused by perils specifically excluded

Coinsurance clause

Provision in a property insurance policy that requires the owner to have insurance for at least 80% of what it would cost to rebuild the building or replace the personal property

Business interruption insurance

Coverage that reimburses a business for the loss of anticipated income following the interruption of business operations

Commercial general liability (CGL) insurance

Coverage for general liability loss exposure, including premises liability, operations liability, product liability, and completed operations liability

Automobile insurance

Coverage designed to provide liability and physical damage protection for a vehicle

Workers' compensation insurance

Coverage that provides benefits to employees injured at work

Crime insurance

Coverage primarily against employee dishonesty

Funds transfer fraud

Unauthorized transfer of funds from a bank account

Social engineering fraud

Manipulation of an employee to voluntarily release unauthorized funds

Health maintenance organizations (HMOs)

Managed-care network providing health insurance that is less expensive than that of a PPO but more limiting in choices of medical care providers

Preferred provider organizations (PPOs)

Managed-care network providing health insurance that is more expensive than that of an HMO but offers a broader choice of medical providers

Key-person life insurance

Coverage that provides benefits to a firm upon the death of a key personnel

Disability insurance

Coverage that provides benefits to a key employee upon his/her disability

Disability buyout insurance

Coverage that guarantees a healthy partner enough cash to buy out a partner who becomes disabled