The Link Between Insurance and Risk Management
Risk management can be defined as the practice of appraising and controlling risk. It is a discipline that deals with uncertainty. No matter how you look at it, every individual faces some form of risk in their daily life. Business owners are also faced with various risks which may threaten their livelihood as well as that of their employees. Having a suitable risk management process in place effectively minimises the amount of financial ruin that could result when unexpected events occur. Organisations usually rely on risk management to influence whether it achieves or fails in its objectives.
Risk management can also be regarded as identification, assessment and economic control of risks that endanger assets and the earning capacity of a business.
This process is informed by four key areas in which risk may manifest:
- Risk of loss or damage to property
- Loss or death to people
- Illness and living too long
Risk needs to be properly managed, which may involve taking preventative measures to mitigate. Funding the adverse consequences of risk is best done through insurance.
What is insurance?
It is a mean of protection from financial loss and can be regarded as a form of risk management.
What it involves:
The transaction involves the insured assuming a guaranteed and known relatively small loss in the form of payment to the insurer in exchange for the insurer’s promise to compensate the insured in the case of a financial personal loss.
When you are considering getting cover for your family or your business interests, it’s important to know the different type of insurance cover that is available. There are two kinds of insurance: long and short-term.
Short –term insurance mainly covers personal property, such as car insurance, household insurance, home insurance or business insurance.
Long-term insurance is usually paid over a long period of time and may include life insurance and disability insurance. This type of insurance is paid out after a defined event has taken place.