What is the best way to handle risk? There are several factors to take into consideration for every situation, but multiple risk management practices should be used.
1. Risk Avoidance - The best way to not have an accident is to avoid them in the first place. Sometimes this alternative can seem the least attractive but ultimately be the most effective.
2. Loss Control - Loss reduction and prevention are the best way to control a risk. Loss reduction can be as simple as implementing safety rules. Loss prevention can be as simple as installing a security system to deter thieves.
3. Risk Retention - Retention involves absorbing part of a loss, regardless of whether its intentional or unintentional. If you insure a new toy for $10,000 and it is worth $20,000, you are prepared to absorb a $10,000 loss.
4. Risk Sharing - Transferring risk in order to shift the financial responsibility to another party. A non-insurance transfer would involve hold-harmless clauses and incorporating a business which reduces the chances of a potential loss.
5. Risk Transfer - One of the most common risk management techniques is to transfer risk through insurance. By paying a premium to an insurance company you look to be reimbursed in the event you encounter a loss.
The best risk management technique is one which has be designed to fit the risk tolerance of an individual or organization. Consult your insurance broker to help you determine a risk management strategy that suits your needs.
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The Base Team
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