Toro`s No Risk Program

Toro’sNo Risk Program

Toro’sNo Risk Program

Reasonsthat led the company to raise the insurance rates

TheAmerican Home Insurance Company had to upsurge the rates as a way ofspreading Toro’s risks and enabling it to remain operational.Before the increase in rates, the cover company used previousrecordings of snowfall to evaluate the average rate at which peoplebought the snowthrowers.Additionally,becausetherewasalready 19 percent outflow from 1982 to 1983, the American HomeInsurance company needed a better way to keep up with the pace of themarket (Bell, 1994). From this perspective, in any case the riskprogram could have been available during the preceding three years,it could have been easier for the indemnity company to operate evenwithout raising its rates. As a consequence, the rate could have beenaround 4.3 % rather than the 2.1%.

Estimationof a reasonable rate of insurance

Afair rate of insurance may be calculated based on historicorganization’s performance. For the case of Toro, the salesstatistics of snowthrowers canbe collected and then applied in the determination of ideal chargesthat the firm needs to be requested to pay.Severewintersmay have caused the rise in demand. The 1983/1984 winter was snowierand hence, the risks resulting from the season needed to be minimal(Bell, 1994). In such a case, a fair rate of insurance needed to bebelow that of the preceding three years.

Perspectiveof consumers on the payback structure

Therisk payback program was typical of a win-win scenario for snowthrowers clients.In addition, they considered the core of the structure as exclusivelyon the patterns of snow weather documented in the various locationswhere the snowstorm was a key determining factor. To them, thesliding scales included complete refunds of 100% in regions withaverage snow of less than 20%. There was also a 50% compensation forsnowfalls of less than 50%. For an improvement in the structure so asto entice purchasers at lower or equal cost insurance, it would beimportant for Toro to reduce the costs of the snow throwers to around10%. Through this, customers would get 50% compensation duringsnowstorms of below the 40% mark (Bell, 1994). To make the situationeven better for the consumers, the rates of premium on indemnitywould need to be fixed to an average percentage.

Howthe program influenced the clients’ buying decision

Becausethe consumers’ insight regarding the promotion was that it had noembedded risks, they could make use of the offers by paying for newequipment models or upgrading to have better ones. Moreover, thestructure provided a win-win situation for the consumers and alsoeradicated the issue of doubt in decision making (Bell, 1994).

Decisiontraps facing the groups in point 2

Everyplayer in the program is susceptible to specific decision traps. Theconsumers face the decision traps on where to show most preference.If one opts to overvalue the absence of snowfall centered on thepreceding recorded figures, he or she may end up buying snow throwerwith regards to the sliding limits of the risk program. It ispossible that the customers could encounter the effect ofpseudo-certainty where they are either risk-susceptible orrisk-averse according to the patterns of snowfall. The clients of therisk platform experience no actual danger since they need snowthrowers irrespective of the absence or presence of the program(Bell, 1994). They have a better outlook of reduced cost.Nevertheless, neither of the groups is risk free as they canmiscalculate the value of snowfalls and withdraw from the purchase ofsnow thrower.

Comparisonof the groups through a decision matrix


America Home Insurance

Ability to limit the Search Trap&nbsp&nbsp&nbsp&nbsp

None: 50%


Inability to Evaluate the Trap

Positive: 70%

None: 30%

Disregarding Ethical Problems trap



Potentialoutcome for consumers: The decision matrix demonstrates that the riskprogram has the potential to cause customer regrets.

Howthe program contributed to purchaser’s regrets

Therisk platform was one that did not come with the provisions to caterfor buyer regret. Even though the program provided consumers with anopportunity to buy snow throwers at their own will, it did notsafeguard their personal terms. As a result, in the event thatclients could purchase units that had no snowfall, there was highprobability that they would eventually be discontented. On thecontrary, if there were snowfalls, then the acquisition of the unitswould be worthwhile (Bell, 1994). In a case that the consumers failedto buy the snow thrower after being provided with the new rates, thenthey would get full refunds or snow throwers at no cost.


Duringthe initial years of the program’s operation, Toro conducted a riskassessment while relating the results to the maximum amounts that theAmerican Home Assurance would charge them. The results of theinternal audit were that for every gain $ 680,000 in terms ofprofits, the company would undergo a loss of nearly $160,000. Duringthe years when the business was doing promotion for its new program,there were several features involved. The America Home Assurance firmwas the first to make an error by announcing the 2.1% rate asindemnity for the snow thrower at retail price. Additionally, thesnowfall that took place in 1983 was considerably higher when likenedto the preceding year. As a result, even after the capping onpremiums by the American Home Insurance company, Toro could not failto benefit from the shorts in its liabilities. Toro gained because itdid not cater for the regular 10% rebate on its 26 suppliersthroughout the winter. The result was that the company had an 8% interms of profits as opposed to the previous year (Bell, 1994).

Framingargument to succeed in desired objectives

Undermy management, Toro Company would need several transformations.Although the risk program achieved its mandate in the 1980s, it mayhave been accidental. All factors kept constant, fate may notreoccur. As a result, there would be the need to ensure that theacquisition days for snow throwers are limited within lesser periodsso as to minimize possible repayments. Similarly, it would beimportant to formulate the risk program in a way that it caters forthe stage two machines. This would help in bettering per annum sales.Third, the outlets for delivery would have the options of eithergiving their customers a 10% refunds or comprehensive risk package.These options would make it easy to increase sales even duringseasons of low sales (Bell, 1994). The coverage company would try torecover from losses while the sales of Toro would go up even in theyears of heavy snowfall. Since weather can never be regulated, therewas easy in communicating uncertainty and the basis for the insurancecover.

Evaluationof the program’s success

Thestrategy ended up as a big achievement for the stakeholders,including the suppliers of snow thrower, the customers, and Toro.First, Toro had a boost in transactions and even managed to assemblean extra 2000 units. The increase translated to growth in the firm’sprofits as the general 1983’s net sales went up by 8%. Equally, thereduced 2.1 % premium was fairly low and favored Toro. Secondly, therefund sliding scale availed a good chance for customers to acquiresnow throwers with minimal risks. The clients from areas of highsnowfall experienced the least overall risks. However, the relevanceof the strategy did not influence the American Home Assurance sincethe 2.1%premium rate was much below average. It was during thesubsequent years of operation that the sales began to increase andthe business made a $106turnover. Snow thrower was a good whosedemand was highly reliant on weather events (Bell, 1994). Because ofthe heavy snowfall during the 1983/1984 winter, there were highchances for the demand to increase even without the introduction ofthe program.

Onthe other hand, the payback program may not be considered assuccessful as Toro’s operating data shows that its execution in1982 led to a loss of close to $8,700. The reason for the losses maybe attributed to managerial expenses suffered in the course of theprogram’s setup. During the launching stage, most consumers hadalready begun showing low of concern for the program. The implicationwas that the effect of the program would be short-term and was notprobably going to assist the future of Toro (Bell, 1994).

Handlingthe risk program and possible biases

IfI were Dick Pollick, I would not repeat the risk program because ofits complexity and uncertainty. Being that weather can at times beunpredictable, there is increased improbability and this intensifiesthe risk that eventually offsets any potential profits the firmstands a chance of experiencing. Based on Carol’s actuarialcalculations, the rates of premium would have to be amplified fourtimes from the preceding year to ensure that it gets close to theconventional 10% rebate already in operation. Furthermore, theweather pattern may be harsh to Toro in an occasion that there is aspell of low amounts of snowfall. Reduced snowfall would lead toheavy fees being compensated and this would have negative impact onthe firm’s bottom line (Bell, 1994). Additionally, the aspect ofcomplexity would be as a result of the extra managerial load relatedto buyer claims for refund.

However,if the program may have been successful, as a manager, I wouldreplicate it in the operations of the subsequent years. Whilerepeating it, I would keep on evaluating customer responses that arerelated to it. In the event that the clients became less excitedabout the strategy in the following years, it may be important toformulate substitute ways to supplement or replace the program.Examples of such strategies would be advertisements and discounts.Continuing with the risk program would make the company vulnerable toone key external bias which is associated with the huge rises inpremiums (Bell, 1994). During severe conditions of winter, theinsurance firm may not be in a capacity to refund the customers inspite of the increased premium rates.


Bell,D. E. (1994). The Toro Company S`no Risk Program. Harvard BusinessSchool Case Services.