Impatience can make even the wisest of people do stupid things. The business world is full of risks. Risk mitigation has become the number one priority of almost everyone in the business world. However, they often fail to assess risks and end up doing utterly stupid things. Jumping the gun with your insurance policy renewal is one of those stupid things. Staying ahead of oneself is one thing and being overhasty and renewing insurance prematurely is another. Companies often fail to go beyond insurance. They rely solely on their insurance policy for risk mitigation and this attitude can prove to be very dangerous for them. There is nothing wrong with choosing to continue an insurance policy and there is nothing wrong with renewing it before it actually terminates either. However, insurance policy should not be an ultimate answer to all your problems. You need to start thinking beyond insurance. You need to secure your business with something that provides better coverage.
We, at DEFY, think beyond insurance. We encourage the practice of proactive planning that enables companies to stay ahead of the curve. Insurance alone is never enough to manage all sorts of risks for you. Insurance alone is not even enough to deal with financial risks.
Risk is inherent with business. Risks should be assessed carefully and continually to know where your company stands currently and where it is headed. Our risk management plan provides you a roadmap for a meticulous analysis of probable risks and their likely impact. This plan also apprises you of risk mitigation strategies that will help you stay focused and ahead of the game.
Our risk management plan recognizes that there are four basic responses to risk. Some companies respond to risk by changing their plans. Some take intermediate steps to reduce the impact or likelihood or both of the threats they are facing. Some assume the chance of the negative impact while some outsource the risk to a third party or parties. Risk Outsourcing is usually done with parties that can handle the outcome and is usually done through hedging transactions or insurance contracts. The usual mnemonic for risk response is SARA for share, avoid, reduce, and accept.
There is no ideal use of these risk control strategies. Some strategies involve trade-offs that companies are not willing to do. Therefore, companies often resort to risk avoidance. They do not want to be placed in a position to deal with risks. They perform activities that do not present any risk. Risk avoidance has no place in the business world. Avoidance may seem like a reasonable thing to do but in the majority of the cases, it’s not. Avoiding risks means losing profit.
Some companies deal with risks by risk optimization or risk reduction. They either reduce the severity of the risk or the likelihood of that risk. Optimization is parallel to finding a balance between the negative risk associated with an activity and the potential benefit of that activity.
Risk sharing is not as good as it looks. Risk sharing involves sharing both the burden of the loss incurred and the benefit of the gain achieved. Outsourcing can turn out to be very beneficial if the outsourcer presents a higher capability to manage and mitigate the risks.
Risk retention involves true self-insurance. It is a workable strategy for small risks specifically. At times, the insurance against the risk becomes greater than the cost of the total loss incurred. This strategy is viable in case of such events.
How to deal with Risks: Our Risk Management Plan
Risks should be carefully assessed. Suitable controls and countermeasures to assess the risk should be selected. Depending upon the type of industry you belong to and the risk you are being challenged with, risk assessment steps vary. If there is a risk that concerns the reputation of your company, top management should decide the countermeasures. However, if there is an IT-associated risk like a computer virus risk, the decisions should be made by the IT Department. Applicable and effective security controls for managing risks should be adopted.
Risk assessment is followed by risk treatment. Once you know what the risk is and what can be done to mitigate it, you proceed to make a risk treatment plan. This plan should document all the decisions regarding the mitigation of the identified risk. Mitigation of risks includes selection of security controls and this must be documented in a Statement of Applicability. Statement of applicability is documented to recognize what control objectives have been selected and why have they been selected.
Now that a suitable Risk Treatment plan has been prepared, it should be implemented right away. To mitigate the effects of the risks, all planning needs to be executed. Purchasing insurance policy also comes under implementation.
A frequent review of your risk management plan is essential. Initial plans are never good enough. You need to practice, experience, and suffer actual loss to finally be able to make a plan that is good enough. Actual losses teach you to make changes. Your risk management plans need to be reviewed and updated periodically. This enables you to evaluate your security controls and their applicability and effectiveness. A plan that is effective in mitigating one type of risk may not be effective enough in dealing with another type of risk. In this ever-changing business world, you need to evaluate the possible changes in risk levels.
Insurance is something every company turns to mitigate their risks. Whether they are trying to avoid legal risks or aiming to mitigate financial risks, nearly all companies see insurance as the most viable option to manage risks. Though insurance helps in risk mitigation, it’s not the only risk containment measure. Renewing insurance back to back is not going to shield your company against all types of losses. With our risk management plan, you can go beyond insurance by identifying, assessing, and mitigating risks not just through insurance but by other countermeasures as well.