Risk Management is the process of making and implementing decisions to deal with loss exposures. It involves identifying loss exposures and then applying various techniques to eliminate, control, finance, or transfer those exposures.
Steps involved in Risk Management Process
1. Identifying and analyzing loss exposures
| Identifying | Analyzing |
| Physical inspection Loss exposure survey Flowchart | Loss frequency Loss severity |
2. Examining risk management techniques
| Avoidance Loss control: Loss prevention Loss reduction Retention Noninsurance transfer Insurance |
3. Selecting the most appropriate techniques
| Decisions based on financial criteria Decisions based on informal guidelines: Do not retain more than you can afford to lose. Do not retain large exposures to save a little premium. Do not spend a lot of money for a little protection. Do not consider insurance for a substitute of loss control. |
4. Implementing the chosen techniques
| Decide what should be done. Decide who should be responsible. Communicate risk management information. Allocate costs of the risk management program. |
5. Monitoring and modifying the risk management program
| Continuously monitor the risk management program. Periodically review the insurance program. Revise the risk management program as needed. |
Managing Loss Exposures: Risk Management
