Risk Management
Risk management is the identification, assessment, and prioritization of risks followed by coordinated and economical application of resources to minimize, monitor, and control the probability and/or impact of unfortunate events. The strategies to manage risk include transferring the risk to another party, avoiding the risk, reducing the negative effect of the risk, and accepting some or all of the consequences of a particular risk. A well defined risk management program minimizes spending while maximizing the reduction of the negative effects of risks.
For the most part, a properly executed risk management plan should follow these methodologies:
1. Identify, characterize, and assess threats
2. Assess the vulnerability of critical assets to specific threats
3. Determine the risk
4. Identify ways to reduce those risks
5. Prioritize risk reduction measures based on a strategy
6. Financing the risk reduction measures through risk transfer
Potential Risk Treatments
Once the risk has been identified and assessed, all techniques to manage the risk fall into one or more of the following major categories:
Ø Avoidance
Ø Reduction
Ø Transfer
Ø Retention
Risk Avoidance
This risk treatment is the most common practice, and includes not performing an activity that could carry risk. An example would be not buying a property or business in order to not take on the liability that comes with it. Avoiding risk might seem like the answer to all risk management, but by avoiding risk you also lose out on the potential gain that retaining the risk have allowed.
Risk Reduction
This method focuses on reducing the severity of the loss or the likelihood of the loss occurring. For example, sprinklers are designed to put out a fire to reduce the risk of loss by fire. This method could be too costly or could cause greater loss by water damage which may not be suitable.
Outsourcing or partner with an agency could be an example of risk reduction if that person can demonstrate higher capability at managing or reducing risks. For example, some organizations outsource parts of their operations because they might not have the tools, time or intellectual property to complete the task profitably. In this case outsourcing only some of their departmental needs makes sense. This way, the company can concentrate more on the special part of their business they can absorb the most margin in.
Risk Retention
Retaining the risk focuses on accepting the loss when it occurs. True self insurance falls into this category. Risk retention is a viable strategy for small risks where the cost of insuring against the risk would be greater over time than the total losses sustained. All risks that are not avoided or transferred are retained. This includes risks that are so large or catastrophic that they either cannot be insured against or the premiums would not be feasible.
Risk Transfer
Many insurance professionals talk about the “transfer of risk” as being the purchase of an insurance contract. However, technically speaking, the buyer of the contract generally retains legal responsibility for the losses transferred. For example, the personal injury in a car accident does not transfer the risk to the insurance company. The risk still lies with the policy holder who has been in the accident. The insurance policy simply provides that if an accident occurs involving the policy holder then some compensation may be payable the is commensurate to the suffering/damages.
Now that we have touched briefly on Risk Management we would like to meet with you and help you create or update your risk management plan. We typically focus on the following areas:
Ø Workers Compensation
Ø Professional Liability
Ø General Liability
Ø Auto Liability
Ø Property