The objective of a Risk Management programme is to identify, analyze, classify and treat exposures that threatens the economic existence of an enterprise. Using a combination of risk identification methodology the risk manager undertakes a risk audit which aims to bring to for probable loss scenario that may affect the existence of profitability of its operation.
Once all foreseen possible origin or loss are identified and accounted for the risk manager must decide how to react or treat each of these identified risk exposures. The treatment of the identified risk exposures could either be done via the implementation a proactive loss control program or via risk financing. The last treatment option employed to treat residual risks would be insurance.
The various facets of an enterprise’s operation is closely examined which may include:
- Its people
- Property
- Goodwill and reputation
- Existing Market
- Suppliers
- Community within which it operates
- What could go wrong?
- What are the possible origin of loss?
- What would be the severity and probability of the loss?
- How do we address/treat or prepare for these foreseen loss scenarios
- How does the management intend to react just in case the disaster happens?
- How do we finance such losses?
The Risk Management Program:
The risk management program must address the identified exposure in an effective yet financially feasible manner. The primary objectives of the program are:
To minimize the probability of loss occurrence. This could be achieved by:
- Gaining top level management support (CEO level) to champion the program. A high profile risk management program could be much more efficiently carried out.
- Communicating the risk management program down to supervisory level and embedding risk management awareness among all staff.
- Putting in place a proactive risk control program at all levels of operation. Program must be documented and must be reviewed periodically.
- Putting in place a reward / acknowledgement system for high achievers.
- To provide a cost efficient cover for all residual risks that could not be totally eliminated by a risk control program. This could be achieved by:
- Ensuring that covers provided dovetail with the insurance cover provided. Cover review must be conducted in coordination with each SBUs.
- Defining an acceptable level of deductible that could be absorbed by each unit. An effective deductible level acts as a deterrent to the risk owner and likewise translates to lower premium.
- Keeping the Insurers / Brokers aware and involved (at selected stages) in the program as it complements their objective of keeping the loss ratio at its lowest.
- Using the risk management program and the desirable ramifications of the program in bargaining for lower rates and better terms upon the renewal of the insurance programme.