Risk may be defined as the possibility of loss. It is considered as one of the inherent features of business. It means that, if there is no risk no business at all. As far as business is concerned, its unpredictable and uncertain future is the basis of this risk. Insurance is one of the practical and acceptable method to face this risk.
Risk may occur due to various reasons. It may happen when customer attitude changes. Risk may also happen due to changes in technology. When a mobile hand set with advanced features is launched in the market, others may find it very difficult to sell their hand sets. The loss or risk may also happen due to natural calamities such as earth quakes, tsunami, storm etc.
Causes of Risk
Risk is always unforeseen and unpredictable. It may happen due to following reasons:
Business risk may happen due to natural calamities such as flood, drought, earth quake, storm, tsunami etc. The events are uncontrollable and unpredictable and makes huge loss to business and community.
Human beings are also creating some losses and problems to business. Strike, theft, riot etc. are examples. Some losses may occur due to negligence, carelessness and accidents. Business is supposed to bear all these losses irrespective of its cause.
Changes in Economy
Economic conditions of a business environment may change due to changes in consumer attitudes and tastes, technological developments, competition, inflation etc. Modern business environment is undergoing fast changes and some of these may turn into business risk to some units.
Changes in Government Policy
Legal and political environment of a business may create some risks to business. Changes in policy (monetary policy, industrial policy, fiscal policy) of government directly affect business. EXIM policy and international relations of the nation may also affect business. Stability of government, fluctuation in foreign exchange rates etc. also affect business performances.