RISK MANAGEMENT

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Risk managers increasingly use enterprise risk management tools to allow them to understand their risk profile, identify cost drivers and analyze enterprise-wide risk. 

Some intermediaries are active in providing such tools. 

One of the functions of some insurance intermediaries is to help clients manage their risks, improving their risk profiles and reducing the likelihood that an insured event will occur.

Not all risks must be accepted as they are.  When properly managed, risks can be controlled and minimized.  Some can be avoided; others can be modified to limit their frequency or financial consequences. 

Risk management is the process of analyzing possible exposure to loss, reducing loss potential, and protecting financial assets.  Businesses often look to their intermediary to act as consultants on risk management and advise them on the best ways to mitigate risk. 

Some intermediaries therefore represent their clients in all phases of the risk management process:  helping clients evaluate risk exposures; implementing measures to minimize such exposures; identifying and facilitating the purchase of insurance products or risks management systems best suited to a client’s insurance needs; and managing the claims process. 

There are many ways to protect financial assets.  Purchase of insurance is the traditional way to transfer risk, but there are other methods that intermediaries and their clients use to ameliorate risks.  Use of alternative risk transfer mechanisms – such as forming a captive insurance company, accepting higher insurance deductibles, or setting up reserves to pay losses – is an example.

Self-insurance

Self-insurance can take many forms.  Policyholders can assume higher deductibles or accept lower amounts of insurance coverage.  Self-insurance programs, however, must be carefully balanced with a well-managed loss control program to minimize the exposure a business faces and to protect third parties that are injured.  That is where skilled intermediaries come in – to act as consultants in designing programs.