Insurance terminology explained in simple terms
What is Risk Management?
In simple terms, Risk Management at a company covers all kinds of risks that could get the company into financial trouble. These might be operational, legal or procedural risks, for example.
The aim of Risk Management is to identify and assess these risks and to reduce the likelihood of a certain risk occurring. The main job with Risk Management is to safeguard the existence of a company and to reduce the likelihood of bankruptcy.
There are four phases to Risk Management:
- Risk Analysis: Identifying risks
- Risk Assessment: Assessing and weighing up the risks identified
- Risk Control: Defining strategies for the risks identified
- Risk Monitoring: Monitoring the risks identified
It’s always the management or board of directors who is responsible for a company’s Risk Management. A well-functioning Risk Management system has defined criteria for classifying and assessing risks; methods for identifying risks; and persons who are responsible for making risk decisions, for providing resources for preventing risks, for communicating the risks identified and for making sure staff are qualified for Risk Management.
In addition to the legal requirements, norms and standards that apply to Risk Management, it is also in the interest of every company to identify risks at an early stage and to develop countermeasures.
One possible course of action in Risk Management is the transfer of risk. This means that all or some of the risk is transferred to third parties, usually insurance companies. Which is why a good Risk Management system at a company also includes professional indemnity insurance for protecting yourself against professional errors, claims for compensation or cybercrime.
Term: Risk Management
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