Question

In: Operations Management

4. Your company is a medium drug manufacturer established several years ago and is developing steadily....

4. Your company is a medium drug manufacturer established several years ago and is developing steadily. The board of directors is planning a huge investment in a new drug’s R&D, which may need financial support from local banks. The government is considering increasing income tax rate for all drug industry in the country. Since there has been little claim against your insurance company in the past three years, the board of directors suggest that the policy need not be renewed when it expires by the end of this year. If you are the risk manager, what would be your suggestion and/or arguments regarding the risk financing plan for your company?

Solutions

Expert Solution

As the risk manager, I strongly recommend the company to renew the insurance policy for the business. We must all consider the fact that a lapsed policy means that the company is at risk though there have been very few claims in the past 3 years. The business environment is an unstable environment and there might be any natural calamities which are unexpected. A business insurance is pertinent as it provides coverage for property or asset damage, legal liability and other risks associated with employees.

Business insurance includes professional liability insurance that provides coverage against any mistakes or failure of the company to perform. It is the negligence claims that they have. Thus, in adverse situation, such as the government increasing the income tax rate for all the drug industry might result in decreased revenue. In this case the company might fail to perform its duties and might claim from insurance company for negligence. Product liability insurance also benefits the company. If in case, the company is sued any lawsuits due to any kind of damages caused by its manufactured drugs, then the product liability insurance protects the business in this case.

Thus, it is pertinent to say that without an insurance policy, a business would not be efficient in its operations.

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