6 Facts About Risk Management Insurance: Identify, Assess, & Prioritize Risks
Risk management insurance is a specific type of insurance policy that businesses purchase to mitigate any potential financial damages, as well as physical damages, employee issues and customer issues, that could negatively affect their ability to function. Determining what type and amount of risk management insurance is needed for your business involves identifying business assets and operations; identifying threats or events that could affect the company; mitigating those risks as much as possible; and finally, determining the percentage of likelihood that an event will occur. That percentage of likelihood is the amount used to establish how much risk management insurance your business needs and what, if any, additional coverage options should be explored.
Risk Management Assessment and Economic Health
The entire process of assessing the risk to your business has an overall positive effect on the economy at large. When you evaluate the risk factors to your business, and address as many as possible, you strengthen your business from the foundation up. By strengthening the company, and eliminating the potential for losses as much as possible, you make the business more likely to survive other risks or threats.
Identifying Causes of Loss
When evaluating the company in preparation for purchasing risk management insurance, you need to identify the causes of loss that may affect your business. These causes of loss may include any or all of the following: the cost to settle claims or judgments of liability, basically any financial risks; risks to the operation of the business, such as labor strikes; natural disasters, weather and political changes, classified as perimeter risks; and strategic risks, such as changes in management or the loss of professional reputation.
The Cost of Risk
The formulation and evaluation of a risk management strategy is guided by the cost of risk. This cost includes any retained losses, such as deductibles or exclusions; the cost for loss control activities; claim management expenses; net insurance proceeds; and the administrative costs of maintaining the risk management program itself.
Types of Loss Exposure
Loss exposure includes any loss to the business, whether financial, physical, employee-related or from legal issues. The types of loss exposure include liability, which is any financial settlements or costs associated with Civil and Statutory issues, and net income, including any reduction in revenue for the business or increase in expenses due to loss of property, fines or loss of key personnel. Loss exposure also encompasses the loss of personnel and property for a variety of reasons.
Techniques for Controlling Risk
Controlling the degree and occasion of risks to your business begins with avoiding activities that may cause loss. Identifying those causes of loss that your business is most at-risk for is a main part of the risk management strategy map. Once you have established what the threats are to your business, you can begin the process of preventing and reducing loss. Finally, when loss does occur, you handle the situation by taking appropriate action regarding the loss, including informing your risk management insurance company and transferring contractual responsibility for the loss as required.
Components of a Good Risk Management Insurance Policy
A good risk management insurance policy will cover multiple areas of risk for your business. These will include loss of property due to natural disasters, fire and even flood; loss due to theft and burglary, embezzlement and forgery; and loss of use, covering any losses of income or extra expense caused by the physical loss of business or personal property. Other coverage that is part of a good policy may include liability coverage and employee benefits programs.
The importance of risk management insurance to your business cannot be understated. Insuring your business against a wide range of risk factors, and protecting it from the inevitability of losses, will help to keep your business running smoothly through adversity and successful into the future.
For more information about Poms & Associates and how we can assist you with your risk management insurance needs, please contact us.
Gabriella Messina is an author who has written online content on a variety of subjects, including business insurance policies, optional coverages for specific businesses, and general insurance information and topics.