Risk Management

Risk Management is to consider the possibility of something happening that will cause harm or loss to your property. This includes any conscious action or lack of action intended to reduce the severity, frequency, or unpredictability of accidental losses.

Risk management is the steps that an organization takes to identify and examine the risks to which it is exposed and to set up and implement an effective plan for preventing losses or reducing their impact.

A risk management plan includes strategies and techniques for recognizing and confronting the threat of loss. Risk management may be as uncomplicated as asking and answering three basic questions:

  • What can go wrong?
  • What will we do (both to prevent the harm from occurring and in response to the harm or loss)?
  • If something happens, how will we pay for it?

When something does indeed go wrong then you deal with it by one of the following ways:

  • Avoidance
  • A large bank account to purchase the lost or damage property or income
  • Insurance

Of course, taking precautions to reduce the risk is always advisable but not all losses can be avoided. An example we can consider is the risk of earthquake. An earthquake has a higher possibility of occurring in British Columbia then in Saskatchewan. So the frequency for earthquake would be high in British Columbia and low in Saskatchewan.

This same earthquake would have a much higher severity in British Columbia if it occurred in the lower mainland as there is a higher population density. The same earthquake would probably cause less damage in Saskatchewan. A business owner located in the lower mainland of British Columbia should be purchasing earthquake insurance and consider other necessary coverage such as business interruption. A business owner in rural Saskatchewan would not consider earthquake insurance a priority and would likely be more concerned about severe weather losses such as a tornado.

Benefits of risk management include:

  • Prevention of Losses,
  • Reduction of the financial consequences of losses; and
  • Peace of Mind.

Remember, insurance is not the only answer. The business in British Columbia is likely to be building with the possibility of earthquakes in mind. An excellent safety program with staff trained in first aid is likely part of your emergency preparedness.

In prior times your agent or broker would be the sole adviser for your insurance coverage. Now your risk manager will work with many people in your company and when it has been determined what losses cannot be prevented then insurance will be considered.