Page 25 - Insurance Times August New 2023
P. 25

management and supervisory activities, comparisons,  Spreading: Spread risk means the risk of loss on a position
          reconciliations, and other routine actions. The scope and  that could result from a change in the bid or offer price of
          frequency of separate evaluations depend primarily on the  such position relative to a risk free or funding benchmark,
          assessment of risks, effectiveness of ongoing monitoring,  including  when  due  to  a  change  in  perceptions  of
          and rate of change within the entity and its environment.  performance or liquidity of the position.The spread of
          Monitoring and review should be a planned part of the  risks refers to whether or not the risks assumed by the
          risk management process and involve regular checking or  company are spread out or are they concentrated in one
          surveillance.  The  results  should  be  recorded  and  type of risk, such as earthquake insurance in California. If
          reported  externally  and  internally,  as  appropriate.  the latter is the case, the company is vulnerable to one
          Once risks are identified, assessed, and a response is  natural catastrophe that could impact the solvency of the
          decided upon, the organization will then need to monitor  company.
          risk(s) to see what has changed and how it impacts the
                                                              Loss prevention and Reduction: When risk cannot be
          organization.
                                                              avoided, the effect of loss can often be minimized in terms
                                                              of frequency and severity. For example, Risk Management
          Methodology in ERM:
                                                              encourages the use of security devices on certain audio visual
          There are five basic techniques of risk management:
                                                              equipment to reduce the risk of theft. Loss control (a.k.a.
             Avoidance.
                                                              risk  reduction)  can  either  be  effected  through  loss
             Retention.                                       prevention,  by reducing the probability of risk, or loss
                                                              reduction, by minimizing the loss. Loss prevention requires
             Spreading.
                                                              identifying the factors that increase the likelihood of a loss,
             Loss Prevention and Reduction.
                                                              then either eliminating the factors  or minimizing their
             Transfer (through Insurance and Contracts)       effect.
          Avoidance: Risk avoidance is one risk treatment (or risk
                                                              Transfer through Insurance  contracts: Risk transfer is a
          control) strategy in enterprise risk  management (ERM).
                                                              risk management and control  strategy that involves the
          Avoidance means taking some action to prevent the risk
                                                              contractual shifting of a pure risk from one party to another.
          from occurring. For instance, you may shut down a site or
                                                              One example is the purchase of an insurance policy, by which
          facility in bad weather to avoid the chances that someone
                                                              a specified risk of loss is passed from the policyholder to the
          might get hurt.Risk avoidance means completely eliminating
                                                              insurer. When a policyholder takes out insurance from an
          any hazard that might harm the organization, its assets, or
                                                              insurance agent, they transfer financial risks to the insurer.
          its stakeholders; and removing the chance that the risk might
          become a reality. This strategy aims  to deflect as many
                                                              In exchange for doing this, the insurance companies often
          threats as possible to avoid their costly consequences.
                                                              charge a fee, or the insurance premium. Another way to
                                                              transfer risk is through indemnification clauses in contracts.
          Retention: Retention refers to the assumption of risk of loss
                                                              The most common way to transfer risk is through an
          or damages. This expresses how a party, usually a business,
          handles or manages its risk. When a business retains risk,
          they absorb it themselves, as opposed to transferring it to
          an insurer.Retention of risk is the net amount of any risk
          which an insurance company does not reinsure but keeps
          for its own account. The reinsurer will indemnify the ceding
          company against the amount of loss on each risk in excess
          of a specified retention of risk subject to a specified limit.
          Examples include:
             When a business owner determines the cost associated
             with loss coverage is less than that of paying for partial
             or full insurance protection.
             When a given  risk is uninsurable, is excluded  from
             insurance coverage, or if losses fall below insurance
             policy deductibles.

            20     August 2023   The Insurance Times
   20   21   22   23   24   25   26   27   28   29   30