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Risk Management
Several steps must be taken to
minimize risk before the insurance mechanism is brought into play. Insurance is
actually only one phase or element of a broader area of protection against loss
and is often the last step in the overall process of risk management. The
process as described in this section is based on business exposures, but most
will also work with personal exposures. In the nature of a broad and simplified
outline, the usual steps in risk management are:
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Helpful Tip
The term “exposure” has three
possible meanings when used in this text:
1) Synonymous with risk: chance
of loss by fire, radiation, accident, etc.
2) The danger of loss,
particularly by fire, arising from what happens to another risk close by.
3) The sum total of values
that, if damaged or destroyed, would cause loss under a policy; i.e., the
value of everything a policy insures.
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RISK IDENTIFICATION AND ANALYSIS
A careful survey of the
operations of the business, its assets and exposures,
plus the probability of a loss occurring and the potential severity of a loss
highlight the potential losses. The analysis addresses the physical assets that
may be threatened by damage or destruction, such as buildings, equipment and materials. It also considers crime losses,
both the internal kind caused by employees and the external ones from sources
outside the business; suits by government agencies, customers, members of the
public, employees and contractors; and various types of interruption of
business operations, among others.
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