Risk management involves identifying, measuring, and managing different types of risk within the operations of a company. It is not, necessarily, about eliminating risk altogether. Since insurers make money by properly managing risk and capitalizing on industry market opportunities, risk management is a process that needs to be continuously developed and practiced by insurers.
However, risk management poses a special challenge for small to medium-size insurers., because, the exposure to loss can amount to from tens of thousands to millions of dollars to them and their policyholders or members. This makes the requirement for superior risk management practices a top priority.
Whether just considering a formal risk management initiative or evaluating your existing risk management program, small and medium-size insurers should consider these best practices:
Establish a Risk-Aware Culture
One of the most important parts of risk management framework is establishing a risk-aware culture. This means that the insurance organization’s leaders and managers need to set the example and give clear guidance on the organization’s risk management program. Additionally, it is their job to integrate risk management across the entire organization or group.
Identify Key Risks
Your efforts cannot stop with the establishment of a risk-aware culture. Insurers also need to be able to properly identify relevant key risks.
Some of the risks that are commonly identified include employee on-the-job injuries, employee or management fraud or other unethical behavior, cybersecurity, regulatory risk from government, currency valuation fluctuations, interest rate changes, and natural disasters such as floods, fires, and storms. Once these risks are identified, the organization can develop the standard procedures to manage those risks and their impacts of the risks.
Quantify and Access Risk with the Right Tools
Through the use of data-collection and risk management software tools, you can quantify risks as well as calculate and identify any risk correlations. Managing risk without risk management software and automatized tools can be a subjective endeavor that is difficult to measure and track. This will come back to haunt the insurer that is facing a regulatory compliance audit.
Look to the Future
While a certain amount of risk is natural to the operation of any company, risk must be managed in order to protect company assets. It is a proactive, preventative measure to control or sidestep losses that could be devastating. In this area, analytics and predictive modeling are helpful, enabling insurers to examine data points and trends from past events in order to identify and predict the outcome of future events. This type of risk management modeling helps arm risk managers with the information they need to proactively intervene in such a way as to reduce loss costs. Only in the past few decades has the business community realized the importance of risk management. As years have passed, the process has evolved into a standardized protocol that can be fine-tuned to meet specific needs of various insurer’s underwriting models. For instance, wildfires probably are not an underwriting concern for insurers writing business in Las Vegas, NV, while the opposite may be true for communities located in northern California.
One solution that many small to medium size insurers are using is a comprehensive insurance management software package that includes risk management software for managing this critical area.
By partnering with a company that provides these software services, small insurers can run their businesses with the assurance that they have the right tools to manage their organization’s risk properly.