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FRONTLINE JOURNALS
20
Development of Risk-Tightening Practices in Entrepreneurial Activity in
The Context of a Green Economy
F.Sh.Khamraeva
Associate Professor of TSEU, Department of "Insurance business", Uzbekistan
A R T I C L E I N f
О
Article history:
Submission Date: 14 April 2025
Accepted Date: 10 May 2025
Published Date: 12 June 2025
VOLUME:
Vol.05 Issue06
Page No. 20-24
D
OI: -
https://doi.org/10.37547/marketing-
fmmej-05-06-03
A B S T R A C T
This article discusses business risk insurance, which is an important tool
for protecting a business from potential financial losses and ensuring its
stable development. The field of entrepreneurship is becoming more
complex and risky, so company owners need to have reliable financial
support in case of unforeseen circumstances.
In this article, you will learn what business risk insurance is, what types of
business risk insurance exist, and what type of insurance to choose for
your business.
Keywords:
Entrepreneurial activity, risk insurance, comprehensive
insurance, risk management, insurance market, insurance products,
insurance protection, insurance culture, economic security, digital
insurance technologies, insurance companies, business insurance,
liability insurance, small and medium-sized businesses.
INTRODUCTION
Entrepreneurial activity is carried out in an
uncertain economic environment. Therefore, the
term "entrepreneurial activity" is inextricably
linked with the concept of "risk".
The economist R. Cantillon wrote about this
concept for the first time. He considered risk to be
the
main
distinguishing
feature
of
entrepreneurship.
A. Smith considered an entrepreneur as an owner
who assumed the risk of managing. At the same
time, the entrepreneurial profit is compensation to
the owner for the risk.
D. Ricardo, D.S. Mill, and W. Senior defined
"entrepreneurial risk" as the possible damage that
may result from an economic action, or its
mathematical expectation. Thus, risk is considered
a quantitative expression of possible losses. This
theory has been called classical. However, the
concept of risk does not fully reflect its essence.
Therefore, the neoclassical theory was developed,
the founders of which are A. Marshall and A. Pigou.
They defined risk not only as possible losses or
their mathematical expectation, but also as a
deviation in the amount of profit from the expected
level. Unlike classical theory, neoclassical theory
does not define risk unambiguously negatively. A.
Pigou identified the stimulating function of risk,
which is manifested in the motivation of
enterprises in conditions of uncertainty to extract
additional profit for the increased risk of decisions
(risk payment).
The American economist F. Knight drew a clear
line between the concepts of "uncertainty" and
"risk." The peculiarity of the first one is the lack of
the possibility of classifying and grouping events,
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since each one is either unique or their number is
insufficient to determine the statistical probability.
Risk can be insured, but uncertainty cannot be
insured.
Later,
the
neoclassical
risk
theory
was
supplemented by J.M. Keynes, who noted the
presence of a psychological component in the
process of making a risk management decision by
an economic entity.
Currently, we can talk about the synthesis of
theories and numerous additions that scientists
make, adapting theoretical aspects for practical
application in various types of economic activity.
Y.S.Pinkovetskaya considers three levels of
entrepreneurial risk
–
acceptable, critical and
catastrophic, as well as methods for assessing the
risk of small enterprises.
V.I. Parasolov studies the basic concepts of
entrepreneurial risk, as well as its classification
and forecasting methods.
R.R. Saifullina highlights the features and risk
factors of small enterprises (limited resources,
higher risks, unstable market position, poor
management quality, etc.), and also emphasizes
the need to develop a specialized approach to
assessing the risks of SMEs.
The issues of risk insurance of business entities
were considered in the works of M.A. Bushueva
and N.N. Masyuk, who highlighted the problems
existing in this industry (low-quality goods,
reduced
effective
demand,
"quasi-market"
relations, contradictions between the insurer and
the policyholder, etc.).
Let us highlight the main aspects of the risky
activities of small enterprises.
1. The risk of an enterprise can be defined as the
mathematical expectation of a loss, loss of profit, or
deviation from the expected result.
2. The risks of enterprises are influenced by the
factors of the external and internal environment,
which
together
make
up
the
business
environment.
3. Small businesses are more exposed to risks than
medium-sized and large ones. This is due to the
fact that their activities are less secured by their
own capital and reserves. Damage to even a small
part of the property can terminate the company's
activities. Troubleshooting costs often exceed the
total budget. The same incident can be fixed by a
large company, but bankrupt a small business.
Especially high risks are typical at the beginning of
the activity.
Medium-sized
businesses,
in
turn,
are
characterized by stability and a high degree of
sustainability.
Among
the
many
signs
underlying
the
classification of risks of small enterprises, we will
single out the most important, in our opinion.:
−
by severity (acceptable, critical, catastrophic);
−
by type of damage (financial, non-financial);
−
if possible, insurance (insured, uninsured).
Risk classification and identification are part of an
organization's risk management.
The most conservative method, risk avoidance,
involves refusing to perform the action that caused
the risk. It is better to use such an event in extreme
cases, because the organization is deprived of the
opportunity to benefit from such an action. A
classic example of risk reduction is its
diversification. Creating reserves for possible
losses is a form of risk-taking. Risk assessment
involves conducting an analysis, determining the
level and then increasing it if there is an informed
decision. Often, the risk is partially or completely
transferred to another organization on the basis of
a contract. The most common transfer method is
insurance. By concluding an insurance contract, an
entrepreneur transfers to the insurer the risk of
material losses that he may incur if certain
dangerous events with a probabilistic feature
occur.
METHOD
Currently, national insurers cannot offer small
businesses a high-quality insurance product that
meets the market demand.
Microinsurance, being a tool for effective financing
of small business risks, is characterized by the
availability of simpler products, alternative sales
channels and marketing tools that make business
protection more accessible.
In traditional insurance, procedures are not
sufficiently standardized and require an individual
approach (involving experts, actuarial calculations
and expertise) in each individual case. This leads to
an increase in the cost of the insurance policy,
complicating the process of concluding a contract
and receiving insurance payments upon the
occurrence of an insured event.
D.M. Corneliu, D. Dror, A. Malima, and L.T. Piesse
note that the definition of microinsurance does not
differ much from the interpretation of classical
insurance. Microinsurance is carried out in
accordance with generally accepted practice, is
based on the same principles, has the same
fundamental parameters and functions as
traditional insurance. However, it has its own
distinctive features. There are three main
approaches
to
understanding
"micro"
in
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microinsurance: depending on the target audience,
product and processes.
The first approach characterizes microinsurance
through the financial situation of consumers.
Buyers of microinsurance services are individuals
with low and unstable incomes or employed in the
informal sector of the economy, immigrants, start-
up entrepreneurs with a bad credit history,
residents of small towns and rural areas, micro and
small enterprises, etc.
According to the second approach, microinsurance
is defined by lower insurance coverage and lower
insurance premiums. As a rule, the term of the
microinsurance contract is shorter, and payments
are irregular. For example, India became the first
country to clearly define microinsurance products
in its regulatory framework using this approach
(insurance products with insurance benefits).
A microinsurance product should be simple and
have the right balance of insurance premium and
insurance coverage, which in turn may be
complete or contain limitations. With full
insurance coverage, all damages will be
reimbursed.
The
introduction
of
various
restrictions complicates the process of settling
losses. At the same time, the use of deductibles and
other restrictions leads to a reduction in the
insurance rate. As a rule, insurance coverage
compensates only for a part of the losses from the
occurrence of a risky event. But even an insurance
payment covering part of the losses helps to
improve the borrower's financial condition and
increases his ability to repay his obligations and
cope with unforeseen circumstances.
A microinsurance product should not require
special training and knowledge for the client to
understand it, complex actions for its purchase,
confirmation of losses, and receipt of payment. It is
characterized by small insurance amounts and
premiums, standardized insurance rules.
The third approach is based on the identification of
features in the processes of development,
implementation
and
distribution
of
microinsurance products and implies the
application of the principles of subsidiarity, when
insured entities participate to a certain extent in
the
management
of
microinsurance,
independently determine the rules for the
payment of contributions and payments. An
example is the mutual insurance system.
Despite the difference in approaches to the
definition of microinsurance, some main features
can be identified:
the application of risk pooling principles (as in
the case of conventional insurance);
Targeting the low-income segment, the informal
sector;
independence from the risk class (life, health,
harvest, livestock, property, etc.).
According to the Swiss Re Institute, an
organization engaged in insurance research and
part of one of the largest insurance companies
Swiss Re Group, microinsurance can be defined
through its attributes.
1. Principles of insurance, including the
equivalence of payment of insurance premiums by
the policyholder (or on behalf of the policyholder
by the government, development institutions) in
exchange for guarantees of compensation for
losses in the implementation of insurance risk.
2. Simplicity. The "lightweight" structure in terms
of product design, underwriting, premium
collection, insurance reimbursement, and lack of
actuarial calculations.
3. Flexibility. Microinsurance products must be
adapted and consumer-oriented. For example, the
collection of regular insurance premiums may
adjust to the irregular income of policyholders.
4. Accessibility. Due to the focus on the segment of
consumers with low or unstable incomes, the
payment for the risk transferred to the insurer
–
the insurance premium
–
determines the
availability of insurance coverage for certain target
groups of buyers of this protection
–
policyholders.
The low fee for an insurance contract expands the
target group of policyholders receiving insurance
coverage. Subsidies from the government and
development institutions are used.
THE ANALYTICAL PART
It should be noted that microinsurance also has
specific features that distinguish it from traditional
insurance.:
1. The principle of load minimization. To maintain
a sufficiently low price, it is necessary to take
measures to reduce administrative and business
expenses
and
remuneration
of
agents.
Microfinance organizations are one of the low-cost
distribution channels.
2. The choice of insurance risk based on the
principle of the most relevant in the context of
ignoring less important risks. Due to the fact that
small enterprises, as a rule, operate in conditions
of limited financial resources, and reserve funds
are often absent, the realization of a risky event
entails more severe consequences for them than
for large businesses. Therefore, an urgent task is to
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choose those risks for insurance that can lead to
critical consequences, such as loss of income, or
even catastrophic consequences, such as loss of
capital.
3. The principle of mutual trust between
policyholders and insurers. The local nature of the
activities of mutual insurance companies, the
ability of members of the company to control
management decisions made by management,
allows entrepreneurs to overcome distrust of
insurance as an effective risk management
mechanism.
4. The principle of innovation. Microinsurance is a
new product in the national insurance market. The
innovativeness of insurance products arises at
various stages of the development of an insurance
product, its sale and the implementation of
insurance protection of the property interests of
policyholders.
The key issue in shaping the microinsurance
segment of the national insurance market remains
the
choice
of
distribution
channels
for
microinsurance products and the business model.
The main market participants are sellers and
consumers of microinsurance services, the
regulator, and intermediaries. As already noted,
buyers of microinsurance services can be
individuals and representatives of micro and small
businesses. Sellers of services are both special
microinsurance companies, mutual insurance
companies, and large insurance companies.
Microfinance institutions that have mastered and
developed technologies for promoting financial
products are also the optimal channel for
distributing microinsurance products.
The development of microinsurance will make it
possible to use the insurance mechanism to protect
the economic interests of small businesses. The
low fee for the insurance product ensures the
availability of insurance for representatives of the
microbusiness
and
start-up
entrepreneurs.
Compensation of losses from the realization of
insurance risk under a microinsurance contract
reduces the risks of bankruptcy of small
businesses.
Financial convergence, the prerequisites of which
are the client, technological, product and
marketing community of microfinance market
participants, is a factor in the development of NSR
risk insurance, helps to reduce the unit costs of
creating and selling a microinsurance product, and
insurance loss settlement.
The development of modern digital technologies
will make it possible to organize new distribution
channels for microinsurance products, promote
competition, and reduce information asymmetry
in the insurance market. Digital technologies will
expand entrepreneurs' access to insurance by
improving the infrastructure of digital services,
simplifying risk identification and assessment
procedures, and reducing transaction costs
associated with the purchase of insurance
coverage and loss settlement.
Further research is expected to be conducted in the
field of building models of integrated risk
insurance for small businesses in the context of
digital transformation of the financial market,
evaluating new digital tools and opportunities that
help optimize the development, underwriting,
distribution of microinsurance products, and
generalizing experience with digital technologies
for insurance loss settlement.
CONCLUSIONS
Modern digital technologies make it possible to
form
new
distribution
channels
for
microinsurance products. Digital platforms make it
possible to organize the process of online sales of
microinsurance policies for customers, access to
which is difficult due to territorial remoteness, low
cost of insurance products, etc. Microinsurance
products themselves are becoming the most
adaptive to the requirements that arise from
developers of electronic systems, and the
availability of products from different companies
on the electronic platform will allow not only to
determine a more competitive product, but also to
compare the cost of an insurance contract and
assess the quality of loss settlement based on
feedback from other customers.
The development of modern digital technologies
will allow remote identification of the insurance
company's client, which will significantly reduce
the cost of insurers to collect and analyze personal
data of policyholders. Insurance claims processing
processes can also be simplified and optimized
using digital technologies. Automatic loss
notification,
real-time
claims
processing,
predictable damage assessment, self-service
capabilities, and electronic payments make claims
management more efficient.
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