Risk management is NOT insurance

Now before insurance people get too excited, let me say that insurance is usually a very important part of an overall strategy of risk management. Insurance, however, is only one of a suite of treatment options available to organizations wanting to manage the uncertainty associated with achieving their goals and objectives. You might say insurance is part of risk management, but risk management is a whole lot more than insurance.

Insurance can protect a business from financial loss resulting from specific causes called “insurable risks” or “perils”. Common examples include property loss from fire, theft or flood; liability for personal injury; or claims arising from alleged negligence, professional errors and omissions. And while insurance companies are always looking to expand the market of insurable risks, in practical terms you can’t rely solely on insurance to protect you from unexpected or potential losses.

This is where risk management comes in. Risk management is a way to manage the uncertainty associated with achieving your goals and objectives. In very simple terms, it involves asking the following questions:

  • What does success look like? What are we trying to achieve?
  • What might go wrong? What unexpected opportunities might arise?
  • What are we doing about it? and
  • Is that enough?

Then, develop strategies to reduce negative risk while you maximize opportunities, generate profits and reduce losses.

Insurance is only one piece of the puzzle. It can cover you for insurable losses by transferring some of the risk to an insurer, in exchange for a regularly-paid premium. But a disciplined approach to risk management can inform sound business decisions, position your business to exploit opportunities, prevent losses and mitigate impacts if something bad does happen.

It can be that simple, and with a little help, you can do it easily and affordably.

Want to know more? I’d love to hear from you. If you have questions, comments or want to geek out about risk management, contact me, Chris Maclean, at:
[email protected]
250-644-1692

6 Replies to “Risk management is NOT insurance”

  1. and by extension – insurance is not risk management – it is simply one of the risk treatment options available and then only in respect of very limited aspects within the overall uncertainty that an organisation faces in doing business

  2. Chris I couldn’t agree more with your assertion. I find the best clients are those who recognize that insurance is a basic and fundamental spoke on the risk management wheel. It’s a funding mechanism for risk transfer. They see that looking at the supply chain, vender contracts, data and analytics, business continuity planning all have spokes on the wheel as well. Challenge is getting more buyers into this mindset.

    1. Thanks for your reply. Perhaps paradoxically, I also find that while clients tend to over-rely on insurance, they don’t always see the advantage of insisting their suppliers and service providers are insured too. I wrote of the importance for including insurance and indemnification language into business contracts here. Let me know what you think.

      Chris

  3. Great comments and sound views.
    Can’t agree more.
    Working in insurance I’ve seen the over reliance on products and an expectation to pay for events the products aren’t / weren’t designed or created for. The client then feels they have been sold a policy incorrectly when payment doesn’t happen. Iinsurance plans can’t cover every eventuality but are a thread in a wider fabric of risk management.
    Thanks for the article.

    1. Thanks, Jacqui, for your comment. There’s no doubt that insurance should play an important role in every business plan. I think (and you would know better than I would) part of the problem is the tendency for insurers to want to sell insurance, and the lack, until recently, of risk managers with an inclusive and proactive approach to risks – both insurable and not. I’ve recently entered into a “friendly relationship” with a regional broker to support each other’s client services. They recommend my risk management and business continuity planning services to their clients knowing it will lower claims and help encourage growth and expansion, and I send my clients their way for recommended insurance products. It’s not just good business for us, it’s good value for our clients. Have you experienced any similar arrangements?

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