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In: Operations Management

QUESTION 2 Eric owns a company that makes self-darkening windshields for vehicles, Sun-2-Shade. He is aware...

QUESTION 2

  1. Eric owns a company that makes self-darkening windshields for vehicles, Sun-2-Shade. He is aware of the risks of owning a business, and is considering various insurance plans. Eric would like to make sure that he won’t incur any losses, and so is thinking about buying policies from two different companies just to make sure that not only will he be covered, but could make money while the company was down. Eric figures that he will be able to manage the risks and losses if something happens. As Eric’s risk manager, please help him in evaluating the risk and what would you tell him about this plan.

  1. What are the issues involved in risk management and the environment?

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Expert Solution

Eric owns a company that makes self-darkening windshields for vehicles, Sun-2-Shade. He is aware of the risks of owning a business, and is considering various insurance plans. Eric would like to make sure that he won’t incur any losses, and so is thinking about buying policies from two different companies just to make sure that not only will he be covered, but could make money while the company was down. Eric figures that he will be able to manage the risks and losses if something happens. As Eric’s risk manager, please help him in evaluating the risk and what would you tell him about this plan.

As Eric's manager, I would advise him that taking insurance cover from two insurance companies will amount to double covers. Although this is not illegal, it does not mean that he will be paid twice in case of any losses or damages. It means that the respective insurance companies can only pay a share of the claim. Actually, this can complicate the claim process for Eric, because the contribution clause means the insurance companies have to agree on what share of the claim each should contribute. Further, making claim from both insurance companies can make him lose no-claims bonus and be prosecuted for fraud.

As Eric's manager, I would help him evaluate the risks posed by taking policies from two separate companies has. This is by helping him identify the risks and rank them considering the consequences and probability of each and every risk. I would advise him to read the terms, conditions of both policies, and mark any auto-renewals and the expiry dates. I would also advise him on the cost of paying for two insurance policies for many people have been victims of paying for two separate premiums for a single payout.

As his advisor, I would tell him that his plan is legal. However, he will not be able to claim the full payout from each of them. If he tries to do so then that will be considered fraud, which is illegal. Also, the claim procedure will be complex as the two companies must agree of payment modalities.

What are the issues involved in risk management and the environment?

Issues involved in risk management and the environment are explained below

Risk management is involved in identifying environmental risks that exist and how to manage these risks in the best manner possible to protect the environment and human health. There are various issues linked to risk management including economic, social, legal and public values.

Economic issues identify the costs of the risks to the environment and the benefits of reducing these costs during risk management. Laws and legal issues define the basis for risk assessments and the methods used in risk management. The public values also reflect the attitudes of the society towards environmental risks and the management approaches to be taken in reducing the risks


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