There are probably more definitions than there are types of risk management. Risk Management comes into play with everything we do, from living our personal lives to operating corporate and public entities.
Simply put, risk management is the process of selecting effective strategy for preventing and mitigating unexpected losses that could financially destroy a business. These losses include everything from employee injury, damage to property, and claims arising from one’s liability to business interruption, loss of income, and general uncertainty.
Prior to the early 1960’s, the term “risk management” was very uncommon. Businesses purchased insurance to protect themselves financially from claims, thus transferring their risk of loss to the insurer. Insurance was purchased; losses occurred; claims were paid; and insurance was usually renewed at very low costs, compared with today’s pricing.
Today, it is not that simple. There are fewer insurance companies in the State of Florida willing to write coverage today. Moreover, premiums are much higher and the remaining competitive carriers only wish to write those risks that are proactive and successful in preventing claims.
Thus, the purchasing of insurance (risk transfer) is only one part of today’s “risk management process”. It is essential for today’s individuals, corporations, and public entities to:
- Identify and analyze loss exposures
- Examine alternative risk management techniques
- Select the apparently best risk management technique(s)
- Implement the chosen technique(s)
- Monitor the results of those technique(s).
