Risk management crucial for unforeseen risks

Sound risk management advice allows clients to assess and economically control risks which can potentially endanger assets. It does not only apply to incidents such as fire and floods, but to legal, physical, human, environmental and technology risk issues as well.

Steven Isaacs, Regional Manager at Lion of Africa Insurance, says that many businesses across South Africa are increasingly recognising risk management as a means for effectively dealing with both known and unpredictable risks. "Businesses often partner with and seek advice from a broker or insurer that has in-depth understanding of their industry and can implement and develop a comprehensive risk management strategy that meets all their needs.”

He explains that providing clients with the right advice at the right time enables them to proactively manage risks by being aware of the dangers lurking in their business operations. "It also further enables clients to protect their assets and employees against future risk.”

Isaacs says that with globalisation and tougher economic and regulatory changes, more businesses are starting to accept risk management as an integral part of organisational processes.

"In the past, brokers viewed risk management as an isolated function that formed part of the risk control measurement of their clients’ businesses. This perception is changing drastically due to uncertain market conditions and increasing business challenges.”

He says that brokers and insurers are starting to see risk management being featured at executive meetings and as a permanent discussion point on the monthly business agendas of many non-listed and public companies.

"When a risk has been identified, clients should be able to asses it for its probability of occurrence, in order to establish whether it is likely to occur or not. An effective risk management strategy will enable clients to continually establish whether there is a chance of occurrence, small chance of occurrence or very little chance of occurrence. Breaking down the probability of occurrence enables clients to efficiently deal with potential business risks,” explains Isaacs.

He adds that, coupled with this should be the assessment of the financial implications that are likely to occur. "Depending on the nature of the risks, clients can either manage or control them economically by transferring the risks to their businesses, either in full or through a risk financing transaction.”

Isaacs says that such decisions should be based on mitigating or preventing as much risk as possible. "Not all risks can be prevented or contained. It is essential for businesses to develop effective responses and have adequate cover in place in the event of occurrence.”

"Brokers and insurers play a critical role in helping clients to identify key components such as risk management, risk identification, risk control directed at risk elimination or reduction, and risk financing.”

According to Isaacs, it is critical for brokers to ensure that clients have the right cover in place and that the sum insured for stock, plant machinery and business interruption is adequate.

"Furthermore, risk management can only be effective when included as part of a client’s strategic plan and financial budget. Clients should always set aside funding for their risk control management programmes.”

He says that a common challenge that brokers encounter is that clients tend to focus only on the profitability of their businesses, and fail to consider the wider insurance and risk implications that come with growth.

"At this stage, it is critical for brokers to actively advise clients on risk management strategies that cover all the needs of their growing businesses, instead of solely advising on traditional insurance products.”