We often hear about different types of cultures and how to set about building a specific culture. With this in mind, is it possible to build a risk management culture amongst insurance clients? There would, in all probability, be many questions from clients that necessitate a response from an intermediary. This pre-supposes that the intermediary is able to develop a risk management solution that adds value to the client and his/her financial wellbeing.
Therefore the big question is: how would an intermediary go about assisting with the implementation of a risk management programme and embedding a risk intelligent culture?
A priority would be to understand what risk management means for a particular type of client and how they would go about implementation. Critically it would have to be a positive rather than a negative outlook relative to the type of event that could take place, as well as the financial impact it would have on the client. It is imperative that risk management is seen as a positive with tangible benefits even though the product is sold as an intangible.
Into the unknown
Risk, in the first instance, is about uncertainty and the possibility of an event taking place. To start it, it is necessary to identify potential risks using various techniques. This is an important step where the client needs to be assisted by the intermediary and can be compiled in the form of a risk register and ranked on the basis of probability. In this phase, one would also consider the cause.
Secondly, having identified the risks, one would analyse the effect of an identified risk if it has occurred. What is the likelihood of an event taking place and what would the consequences be? This information can be recorded systematically in order for the third step to take place, and being able to evaluate and rank each individual risk relative to the total risk profile of the individual client.
Accept or adjust
At this point the decision making process starts to kick in. The client accepts the risk as is or decides to mitigate or reduce the potential of the risk taking place or possibly removes the risk in its entirety. The last step is dependent on key factors and importance of the risk involved. An example we could use is someone who stays on a farm and faces the risk, particularly during summer months, of fires starting elsewhere and spreading to the house which is surrounded by dry grass. The client agrees to build a five meter fire break around the property. In the event of a fire, the fire break would potentially prevent the spread of the fire.
In the example it is not absolute that a fire would not occur, what has taken place is the implementation of a risk reduction technique. By anticipating possible events, the client is able to minimise the element of surprise and is able to reduce potential financial waste. The final step is to continually monitor the risks that have been identified to ensure that, in the event of any change, the risk management steps are either adjusted or maintained.
Mitigating circumstances
Why, therefore, the need for insurance? By implementing a risk management strategy, the client benefits by better managing their risk, avoiding financial disaster and ultimately reducing the premium contribution. Should the risk management programmes fail in regards to ineffective preventative measures, insurers are structured responsibly in order to contribute to the overall economic well being of the country by being in a position to pay for a client’s insured loss. A win-win situation is achieved with the intermediary being integral to this process.
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