Risk Management
What Does Risk Management Mean?
In the context of insurance, risk management is the process by which an analyst reviews data to determine whether providing insurance to a potential policyholder is a sound investment. Without a firm grasp on this process, a company could face significant losses. Risk management involves assessing potential risk, investment, and earnings using the data provided by applicants during the application process.
Insuranceopedia Explains Risk Management
Put simply, risk management is a straightforward process. First, the analyst identifies the risks. Based on this assessment, they then decide how to proceed with the potential policyholder—either adjusting the amount of coverage offered or declining the application. Applicants flagged as higher risk sometimes have to turn to specialty products like high-risk homeowners insurance after being declined by standard insurers. Risk management is a fundamental practice across the entire financial industry, not just in insurance. Companies shopping for business insurance use the same logic, since they have to weigh their own exposure against what coverage costs.