Mastering Risk: Strategies for Protection & Security
Handling Risk
Since you cannot completely avoid all risk, you must learn to handle it.
You can avoid, reduce, retain, or transfer risk.
Risk Avoidance (Individuals and Businesses)
Avoiding risk involves thinking about the consequences of decisions. However, it is not always practical to avoid all risks.
For a business, this means refusing to engage in a particularly hazardous activity.
All business decisions should be made with consideration for both the potential benefit and the associated risk.
Risk Reduction
Some risks cannot be avoided completely.
Business owners reduce risk by designing work areas to lower the chances of accidents or fire. They educate their employees about the safe use of equipment and keep safety equipment ready for use. They also provide information about the correct use of products and warn customers about possible hazards.
Screening and Training Employees
The best way to reduce risk from employee carelessness and incompetence is through effective employee screening, orientation, and training.
Some companies require prospective employees to undergo drug testing before being hired.
Risk Retention
Risk Retention means bearing financial responsibility for the consequences of a loss.
Example: A business may retain the risk that customer tastes will change, and its merchandise will not sell. The business might underestimate this risk and stock too much merchandise. If customer demand for that merchandise changes, the business may incur a greater loss than planned.
Risk Transfer (Businesses and People)
Insurance provides a way to transfer the risk of loss to an insurance company. Insurance divides a possible loss among large numbers of people or companies. Each individual or company then pays a fee (known as a premium) for this protection.
Insurance Protection
Acquiring insurance protection requires careful planning and decision-making. You must assess your individual situation and then choose the protection that best fits your needs.
The premium is the price an insured person or business pays for insurance protection for a specified period.
Insurance operates on the “principle of large numbers,” meaning losses are shared so that no single person or business carries the entire risk.
Risk, peril, and hazard are important terms in insurance:
- Peril
- Anything that may possibly cause a loss.
- Hazard
- Anything that increases the likelihood of loss through peril.
- Insurance Policy
- A contract between a person and an insurance company to cover specific risks.
Types of Insurance
Common types of insurance include:
- Life Insurance
- Offers protection for family members after someone dies.
- Property Insurance
- Covers damage or losses to your property.
- Liability Insurance
- Covers damage that you may have accidentally caused to someone else or to someone’s property.
- Health Insurance
- Provides money to pay medical bills in case of accident or sickness.
Many businesses offer life and health insurance coverage to their employees.
Workers’ Compensation Insurance protects workers who are injured on the job.
Workers’ compensation insurance is required by the government and is paid for by employees. It also covers job-related illnesses, such as carpal tunnel syndrome.