“The process of protecting an organization’s assets through exposure identification, risk analysis, risk control, financing losses with external and internal funds, and the ongoing monitoring of the process.”
Risk Identification – The process of identifying and examining the potential sources of losses faced by the firm(People, Assets, Liability & Income), using:
- Checklists/Surveys,
- Flowcharts,
- Insurance Policy Analysis,
- Physical Inspections,
- Net Income/Financial Analysis,
- Compliance Review,
- Contract Identification and Analysis,
- Policy and Procedures Review,
- Loss History Review, and
- Experts
Risk Analysis – The assessment of the potential impact that various exposures can have on the firm.
- Qualitative Analysis
- Quantitative Analysis
Risk Control (pre loss)- An action to minimize, at the optimal cost, losses that strike the organization
- Six Techniques of Risk Control
- Avoidance
- Prevention – frequency
- Reduction – severity (both pre-loss and post loss)
- Segregation (separation or duplication).
- Combination of techniques
- Transfer (either Contractual or Physical or both)
Risk Financing (post loss) – The acquisition of funds, at the least possible cost, to pay for the losses which strike the organization
- Retention – The acquisition of funds from within the organization to pay for losses
• Unplanned; ignorance, remote losses
• Planned
– Captive
– Funded Reserve
– Unfunded Reserve
– Current Expense - Transfer – Contractual or other arrangements where losses are financed from outside the organization
• Non insurance (i.e. industry group)
• Insurance – A relatively small known cost substituted for a potentially larger unknown cost
Risk Administration
- Planning and risk management policy development
- Implementation
- Monitoring