Page 24 - RMAI July-September 2018

July - September 2018

To fully prevent liability and personal loss arising out In Marine Cargo chances of loss to the goods in transit
of the manufacture of a particular insecticide the firm and/or through non/short delivery could be reduced
would have to stop producing it. This would eliminate by adequate packing of goods, property marking of
any possibility of liability claims arising out of future package with weight, dimensions, destination,
production or of the loss of service of personnel in handling instructions, by selecting reputable carriers
producing future output. However, because future i.e., couriers or transport operators and steamship
product liability claims can arise out of the use of the companies for transportation of goods and by
past output now already with dealers or customers' selecting the right clearing and forwarding agents
shelves, complete risk avoidance of the product who take proper care in forwarding the goods and
liability exposures would require recalling all the clearing and taking promptly delivery of goods.
firm's [past unused output. Because of this, as well as RISK RETENTION :
many other practical reasons, risk avoidance is not
There are various reasons why a business may retain
likely to be a real way of meeting risks.
all or part of a risk. In some cases the owners or
Preventing Loss Exposure :
managers of a firm may decide that there are certain
The second and most important way of meeting a risk losses that the firm can afford to absorb. In other
is to prevent it. All loss prevention measures are cases, a business may have experienced certain kind
efforts to reduce the probability or frequency of loss. of losses so frequently that it is willing to absorb such
As for example to prevent explosions during losses if and when they occur. For example, a firm
manufacture which may result in loss of and or bodily owns several delivery trucks. The drivers of these
injury and property damage to residents of trucks have established an excellent safety records.
surrounding properties – careful control of the Trucks are operated in rural areas with no traffic
temperature of the manufacturing process is congestion and the value of the trucks has decreased
essential. because of their age. A business person may decide to
The prevention of risks in agriculture means the avoid buying own damage insurance and absorb any
reduction of uncertainties through improved losses caused by own damage to the trucks.
technique and organization. Another example is if the goods in transit may suffer
Motor vehicle accidents can be prevented by an minor damage losses, the firm may not insure the risk
effective enforcement of traffic regulations both for but may decide to treat the losses normal operating
drivers and pedestrians, by constantly improving expenses of the running of the business.
design and maintenance of roads and like.
In some cases the firm may decide to establish a
However, notwithstanding the enormous advances reserve or fund to which periodic payments are
made with regard to technical, organizational, social, credited and from which losses are paid as and when
economic and personal factors uncertainties they occur. This technique is used also when the
affecting both property as well as persons still remain amount of such loss likely to occur is small and the
a factor to be reckoned with. occurrence for such losses can be closely estimated
Minimizing Loss Exposures : based on past experience. For example, medical
Since all losses cannot be avoided or prevented, expenses of employees for illness may be dealt with
efforts can at least be made to minimize or reduce the through this method. If 5,000 employees are involved
same. For example, fire alarms and automatic and 500 employees of an average fall sick every year
extinguishing systems do not keep fires from (as indicated by past experience) than a 'self-
happening, but, they can help to hold the size of the insurance' fund may be created to pay for all such
loss. Also, a firm might minimize the potential for medical expenses. The fund will consist of
losses to its inventory as a result of fire, windstorm or contributions credited to it by the firm from its own
such other perils by warehousing merchandise in finances and may be a portion by way of employee's
several locations. contribution.

RISK MANAGEMENT ASSOCIATION OF INDIA 23