Risk Management

Not all risks need to be insured. An insurance programme should be part of a comprehensive Risk Management plan that identifies and evaluates all risks that can have a negative financial impact on a business.

The first step in Risk Management is to review all operations of the business, carefully looking at the physical and financial hazards. This should encompass every aspect of the business operations and also include the potential impact of disruptions at suppliers, parent companies and customers.

All the perceived risks are then evaluated for their loss potential and frequency and categorised into low medium or high risks. After completing this exercise you should be able to ascertain which hazards you should positively tackle and which ones you can afford to ignore

We then devise solutions to remove or reduce as many of the hazards as possible by cost effective means. Solutions can be various such as housekeeping, fire prevention and security systems, procedure manuals for financial risks and many other means of limiting exposure.

The major consideration in removing or reducing hazards is the cost factor. It may be uneconomic for the business to completely remove the hazard or reduce it to an acceptable level and other solutions such as financing risk or transferring it to others will be required.

The remaining hazards are normally of low to medium frequency but high risk and cannot effectively be controlled in house. These are normally transferred either by insurance or to other parties through contractual agreements.

In most cases when transferring risks to insurers the Insured is required or elects to retain a portion of the risk. This self insured retention (deductible) must be reviewed in order to ensure that in the event of a loss the deductible will not impact greatly on the financial result of the business. The savings in premium due to higher deductibles must be assessed an possible provisions made in the financial statement if high deductibles are chosen.

It must be remembered that risk management is an ongoing process and must be continually reviewed if it is to be of full benefit to the business. The risk management process must involve many of the staff from top management downwards and should be coordinated by your Insurance Broker, Lambert Brothers.