“What is Risk, and What is Risk Management?” – Russ Browning, Rogers, Gunter, Vaughn Insurance, a HUB International Company

The dictionary definition of risk is “Possibility of loss or injury,” or cited as “a situation involving exposure to danger.”  Risk for a business is just that! Risk is anywhere that a business has a possibility of loss or injury, or has an exposure to danger. Can we cover all the risks a business faces by purchasing insurance? No! To fully understand how you can manage your risk, you must first understand the different types of risk.

There are three types of Risk:

Business Risks are the risks that effect the day to day operations. These are risks like Hiring, Firing, Managing Communication, Managing the Culture of your firm, Attracting and retaining top talent, Client Growth, Contractual Risk Transfer, Employee Turnover, OSHA, Health of Employees, etc.

Strategic Risks are the risks that impact the value and financial future of the organization moving forward.  These are things like Budgeting, Perpetuation, Disaster Recovery, Employee Engagement, Reputation and Strategic Planning.

Hazard risks are risks that create a physical loss in the company.  Fire, Wind, Earthquake, Water, Flood, Limits, Liability, Deductibles, Slip and Falls, and overall Coverage that a business carries.

The goal of effective Risk Management (aka Real Risk Management) is to address all three types of risk that could affect your business.

So is real risk management collecting information and getting policies/quotes?  Not exactly. Collecting information and getting policies/quotes may provide a lower insurance premium in the short run, but doesn’t really help a business when it comes to managing the risks that they face and preventing losses in the long run.

There are 5 proven strategies of risk management:

Prevention- Can we can prevent an accident or a claim from happening?

Mitigation- If it does happen, how can we lessen the impact of the claim?

Transference– How can we shift the liability, or risk to others via the use of a contract?

Assumption– How much risk are you willing to accept? Everyone has a different appetite and are willing to assume various levels of risk. You may be willing to assume certain risks, take on more risk via deductibles than another might be, or you may be willing to take on less.  You may weigh the cost of insurance versus your thoughts on the likelihood of it happening and be willing to save the cost and forego the insurance.

Financing– Can we buy a policy to protect us against financial loss or litigation due to a certain peril?

Of the three risks, buying insurance only responds to Hazard risk. Unfortunately, this is where 90% of insurance agents spend their time. Of the 5 strategies of risk management, the option to finance is often times the most expensive. This leaves business owners with a false sense of security and much of their risk left unaddressed. Of course, we are required to purchase insurance in many cases, whether it be to qualify for jobs, loans, bonds, etc., and in most cases, it is a pretty good deal versus self-insuring against potential loss.

It is important for a business to not only understand the types of risk, and the risk management strategies, but also to align themselves with an agent who is willing to help address risk, not just quote and service policies. Knowing the types of risk you face and how to manage that risk is the first step a business owner should take when protecting their business!