5 Steps in the Risk Management process:
Life is full of risk. Personal risks, business risks, missed opportunities, etc. Even living in a bubble like the “Bubble boy” from Seinfeld has risk associated with it.
Understanding risk is one of the main benefits of the broker or agent model, these professionals provide a perspective and experience that an individuals or businesses doesn’t always have, since their mind and time is spent in areas outside of Insurance and/or Risk management (for example growing their business or spending time with family). This experienced professionals can help explain the difference between hazard and risk mainly by correctly identifying hazards and quantifying risk.
The focus and experience of this insurance professional have many benefits, but one is that the broker or agent understands the detailed steps of the risk management process.
This is something that a quote comparison tool cannot offer at this time.
Over time, technology may advance and someone will develop an application for a phone to scan the room, asset, or business property to evaluate risks and exposures- but as of writing this article that seems like we are quite sometime away.
Until this tool is developed, humans need to use the 5 steps in the risk management process to help.
There are 5 steps in the risk management process…
Identify loss exposures
- An example includes establishing a list or inventory of property or liability exposures that individuals or businesses are exposed.
Review these exposures
- Estimate the significance of these exposures, essentially figuring out a cost and likelihood of a loss occurring. How much would an accident cost? How often would it occur?
Explore risk financing or risk control techniques
- These can be examples such as insurance (risk financing) or avoiding certain activities or risks (risk control). There are additional risk financing and risk control techniques to explore, these are only 2 examples.
Select the appropriate technique
- Then its up to the individual or business to select the most appropriate technique for them.
- The costs or opportunity costs must be weighed carefully. If insurance is relatively cheap compared to the risk control measure costs, its a valuable product.
Monitor the results and revisit.
- The selections should be reviewed regularly, exposures can change as well as the best available techniques can change.