INSURANCE: Preventing a Risk Management Free-Fall

When some people think of taking risks, thoughts of springing from a plane with only a parachute and a prayer come to mind. In business, taking risks may not be this dangerous, but there still are potential pitfalls. Consequently, many companies are employing risk managers to avoid disasters.

Businesses often face potential perils because they operate globally, offer sophisticated products and services, must incorporate increased regulatory standards and rely heavily on technology. And, today's businesses accomplish this with streamlined staffs. Each company transaction carries liability, and it's up to risk managers to pinpoint how to minimize, handle or transfer exposure elsewhere.

Qualified risk managers have well-rounded experience, including knowledge related to insurance, health and safety, the environment, disaster recovery and contingency planning, ergonomics, security, commercial law, and internal control. Typically, they work with insurance brokers, accounting firms, safety managers and risk management consultants.

In the past, risk managers were responsible for a company's insurance coverages. But today, the responsibilities are much broader. Some establish committees to help handle risks, drawing knowledge and experience from across the company. The committee can identify potential hazards that need to be addressed, including:

Market risk. Competitors, market price and interest rates.

Credit risk. Once the domain of the treasurer or accountant, today's risk managers now handle credit exposures.

Financial risks. This can include performance, stock price, accounting practices and reporting procedures.

Property and casualty risk. Insurance agents help in this area, focusing on loss prevention, injury reduction, and employee health and safety improvements.

Once hazards are identified, risk managers determine how to manage each risk area by whether:

  • The predicament can be eliminated.

  • Risk can be transferred to a third party. For instance, when entering into a new business arrangement, a contract can transfer risks to another business or entity.

  • A company's insurance program can be restructured to manage potential dangers more effectively to help minimize losses.

  • Effective programs can be implemented. Programs can vary from employee health and safety programs to computer-generated risk models that detail exposures.

  • Programs can be tracked and monitored to see if they are working effectively because predicting a company's risk is an on-going process.

The financial and energy industries lead the trend in developing risk management roles. However, the waste industry is not far behind. This is good news because as the business world becomes more complicated, risk management becomes more important.

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