Explore BrainMass
Share

Reducing risk through insurance

This content was STOLEN from BrainMass.com - View the original, and get the already-completed solution here!

Corporations can purchase insurance as a means of reducing their risks. What are the primary limitations on the extent to which insurance can reduce the risks faced by a corporation?

© BrainMass Inc. brainmass.com October 25, 2018, 8:20 am ad1c9bdddf
https://brainmass.com/economics/personal-finance-savings/reducing-risk-through-insurance-536805

Solution Preview

Insurance is generally utilized as a hedge against unforeseeable consequences, such as fire, accidents, disasters, etc. Corporations, depending upon their line of business, can invest in a number of insurance vehicles to mitigate various risks - this includes standard disaster and government-mandated insurance, such as commercial automobile liability and workers' compensation insurance, but also extends to voluntary coverage such as commercial multi-peril, ocean marine coverage (if engaged in shipping), medical malpractice (if in the health services industry), product liability insurance, professional liability insurance (including extending to ...

Solution Summary

Insurance is generally utilized as a hedge against unforeseeable consequences, such as fire, accidents, disasters, etc. Corporations, depending upon their line of business, can invest in a number of insurance vehicles to mitigate various risks. This response details many of these ways.

$2.19
See Also This Related BrainMass Solution

Independence Of Risks And Insurance

Chapter 11
1. Why does the assumption of independence of risks matter in the example of insurance? What would happen to premiums if the probabilities of house burning were positively correlated?

14. Small firms can discover the abilities of their workers more quickly than large ones because they can observe the workers more closely at a variety of tasks. Does it then make sense for people with high abilities to go to small firms? Give some reasons why and some reasons why not.

Chapter 12
4. In some ways monitoring is easier in a partnership than a corporation, where shareholders monitor directors. In what ways is monitoring easier? In what ways is it not?

11. A friend convinces you that she has a great idea for business, and the two of you incorporate. You supply her with funds and let her make all of the executive decisions. Under the agreement you hold 30 percent of the firm's stock and your friend holds 70 percent. Why should you ever put yourself into a position where your friend's decision will carry the day, whether you agree with her or not? What does this tell you about problems that allegedly stem from separation of ownership and control?

View Full Posting Details