How Does the Risk Manager Help?

The risk manager’s job is to identify and analyze risks and to make recommendations to management concerning how to control and finance them. To do this effectively and efficiently, the risk manager must be aware of all the activities, assets, locations, products and processes of the organization. Risk managers must also have knowledge of business law, statistics, economics, safety and loss control, business finance and insurance. Most of all, the risk manager must be innovative in applying this knowledge in the performance of his duties.

The risk manager is responsible for anticipating losses, adequately preparing the organization for them and minimizing the costs of doing so.

The Role of Insurance in Risk Management

Insurance is a component of risk management, not a substitute for it. In exchange for the payment of a known loss (the premium), insurance transfers the financial consequences of covered loss exposures from the insured to the insurance company. This transfer of loss exposures by purchasing insurance to cover them is the most common and frequently used method of handling risk. However, some exposures are simply too trivial to justify the purchase of insurance and others are so monumental, uncertain or uninsurable that no insurance carrier will accept them. In addition, worldwide exposures, certain unique types of risks and exposures created by government-enacted legislation are normally avoided by most insurance companies. To summarize, insurance is simply not available for many of the risks and exposures that organizations face. If insurance for a given risk or exposure is not available, that risk or exposure becomes retained by the insured and must be financed with funds from within the organization if it causes a loss. Insurance availability is not the only reason to seek alternatives to handling risk. Organizations monitor use of corporate funds closely because of the ever-present need to maximize profits. If organizations do not use the most effective and efficient methods of financing identified risk or loss exposures, they jeopardize their competitive position in their marketplace and possibly their future survival.

Conclusion

Insurance may be the first or last way to handle risk but it is not necessarily the only way or the best way. Risk management is a comprehensive approach to handling risk by identifying, analyzing, controlling and financing risk, and finding and implementing the most efficient methods for doing so. The risk management function plans pre-loss activities, prepares the organization for losses and executes post-loss activities. When risk management activities are done effectively and efficiently, they offer a thorough and efficient approach for addressing the expenses and effects of losses that face an organization