You’ve come to this website to learn more about insurance for you business or your personal life, but let’s take a step back and look at where insurance fits in with other risk management strategies.
Insurance is just one component in a risk management scheme. What is risk management? well it is a fancy term for a very basic concept. It is nothing more than taking commonsense approaches to dealing with potential losses including fire, theft, liability, etc…
Risk management is a process that anyone can follow. The major steps include
- Identifying risks
- Analyzing risks
- Selecting the best method for handling the risk
- Implementing the chosen alternatives
- Monitoring the results
We’ll go into greater detail on the process steps in another post, but let’s skip ahead to where insurance fits. There are several ways that we can handle the risks that have been identified. These include:
- avoidance
- loss control
- Retention
- Contractual transfer
For risks that are not handled by one of the techniques above we have insurance. Technically speaking, insurance allows us to trade the unpredictability of dealing with financial consequences of a major loss versus the predictability of periodic premium payments.
Another way of looking at it is that for a smaller, predictable amount of money insurance will return an insured back to the same financial position they were in before a loss occurred.
in the following days we’ll discuss how insurance premiums are computed and the steps you can take in order to assure that you are receiving a fair premium based on your risk. In the meantime, if you have any questions about insurance or risk management please feel free to contact one of the insurance professionals at Jerry Hay, Inc. We will be happy to assist you in any way possible.