Risk and Insurance Management Simplified

Risk management is much more than simply selecting the right insurance policy, and indeed insurance is only one financing alternative in the process of managing the hazards of doing business. The first step is to eliminate or at least reduce risk. For example, it makes sense to construct safe buildings and to follow sound operating procedures in the workplace in order to reduce the risk of accidents. Similarly it pays to be careful when storing important papers, such as contracts, or book negatives. Electronic data should be kept in a safe place, secure from physical damage, as well as from theft or tampering (off-site storage of backup tapes is a wise practice). The second step is to prepare as much as possible for the unavoidable. Enterprises routinely assume certain kinds of risks as part of normal operations. Expending minor building repairs, adding a contingency amount to a budget, and maintaining an inventory write-down reserve are examples of this tactic. Every business expects to encounter these small and often frequent "losses" and, accordingly, charges their cost to normal operations. The third step for organizations is to self-insure against certain kinds of risk.