Insurance Has Its Place

Insurance professionals typically focus on various types of insurance as a preferred method of protecting against losses. Insurance safeguards against certain types of losses to a business's physical assets, as well as liability to third parties. Liability insurance helps cover the financial consequences arising from a company's operations or decisions.

For example, insurance can be highly effective in addressing damage to an office building caused by a windstorm. It is also valuable when a business faces legal action because a customer is seriously injured after falling down the outside steps while leaving the premises.

Insurance is but one tool of risk management. It is a method of transferring risk. Specifically, it shifts financial responsibility from the business owner to an insurance company. In exchange for paying an insurance premium, the business reduces its exposure to various types of losses.

It’s essential to recognize, though, that Risk Management is a comprehensive approach to addressing various threats businesses may encounter. It is essential because, although insurance can be effective, it is often expensive and with limitations. For instance, insurance may not cover certain types of losses, such as non-accidental risks or catastrophic events that cause widespread destruction.

There is a full range of Risk Management strategies to address potential losses. These strategies can include retaining the risk, reducing the risk, eliminating the risk, transferring the risk to an insurance provider, or any combination of these methods.

Risk Management creates greater awareness of exposure since an entity must deliberately address sources of loss. One exposure that property and casualty insurance can't adequately address is business sustainability. Please refer to “Let Processes Address Sustainability.”