What exactly is risk management? There are a number of definitions, below are a few for us to examine:

1)     Risk Management is the practice of protecting an organization from financial harm by identifying, analyzing, and controlling risk at the lowest possible cost.

2)    Risk management is the active identification, evaluation and management of all potential hazards and exposures to loss that a risk may experience.

3)     Risk management should be a continuous process of identifying loss exposures, measuring them against the firm’s ability to tolerate them and then handling them with the appropriate control, transfer or financing techniques.

Comment: The most focused is probably the first because it lasers in on “protecting an organization….at the lowest possible cost.” Everything else in between is a discussion point. Those of us who are responsible for managing an insurance program should always try to keep this in mind when discussing the purchase of an insurance product or discussing risk management techniques because after all that is what we are all after – the lowest cost. The challenge is to think about ways in which to reduce costs, properly communicate the pros and cons of each choice to those that it affects and arrive at the proper solution that will best protect the organization.

What is likeable about definition #2 is that it has the word “active” in it. We should keep ourselves informed as to the things going on around us locally, nationally and internationally that could potentially affect our business/organizations in an adverse way or for that matter in a positive manner. Once we recognize a certain “exposure” we must act on it one way or the other. We need to keep up on the world around us (we do not operate in a vacuum).

The third definition identifies risk management as a “continuous process”. It’s not appropriate to renew your insurance program and then put it up on the shelf until next year. Risk management is a continuous process that actually begins even before a policy is written and does not really end at all. It is a continuous work in process/progress where we look to improve coverage, terms, conditions, claims reporting/handling, loss control/mitigation, exposure analysis/identification etc. year after year.

Bottom Line: Protecting an organization from financial harm is the number one goal, doing that at the least possible cost is admirable but not practical if you’re not actively involved in recognizing potential exposures and hazards throughout the year and beyond. Jump in with both feet and ask yourself how can we improve our “risk management program” today and tomorrow? That is the beginning of a continuous process.