Introduction to risk, what’s your exposure?
A risk is a cost to a business like anything else. Trying to anticipate the cost of mitigation against a potential loss can be as reliable as looking into a crystal ball.
Business risk management is the process by which an organisation assesses and addresses its risks.
Historically this practice has been associated with insurance-buying, occupational safety and health and legal liability management, but in more recent times organisational risks have been seen to be pervasive and not just confined to “insurable” or accident-related situations.
Daniel Waters, director of Mavco Insurance Group, says risks to a business could come from property, financial, reputational, employees and many other areas.
“Risk is an area that could cause damage towards businesses, and it can manifest itself in a whole manner of ways,” Waters explains.
“For instance, there are contractual risks that are assumed under contract; product risk when a company is involved; liability exposures where injury or damage is caused to third parties, and there’s a risk in terms of employing staff around workplace safety and occupational hazard.”
And it seems that these days companies are increasingly trying to offset the potential loss by insuring against all sorts of risk to their business.
Waters says measuring risk is about getting into the specifics of a business.
He asks the following questions:
- What’s the size of the enterprise?
- Who are their customers?
- How many employees do they have?
- Where are they located and operating?
- How are their systems protected?
“It’s a whole gamut of exposures, and we spend a lot of time with clients trying to go with them and understand where the areas of exposure are, and then you can work backwards to determine whether or not there is insurance available for the areas of their businesses that aren’t covered,” he says.
Waters says sometimes alternative risk management approaches are needed to help manage exposures that can’t be transferred to insurance companies.
“Some risks cannot be quantified and therefore cannot be insured against,” he says.
For example, it would be challenging to calculate the growing risk of new competition, and its long-term effect on an existing business model.
And there are some things that a business should not do so sometimes it’s as simple as removing risk from the company.
But Waters says most well-rounded businesses are generally quite acutely aware of the risk profile of their own business.
“I think sometimes they don’t take the time to understand what they can manage by insurance or by other means and how well they structured the set up to protect them,” he says.
Types of risk
- Exchange Rate
- Interest Rate