The Business Case for Insurers to Adopt Operational Risk Management

Cathy Hampson and Gustavo Ortega

INTRODUCTION

In risk management, the concept of risk treatment refers to management strategies of existing risk exposures through risk-reduction activities, risk avoidance, risk transfer or simply risk acceptance. Insurance is known to be the most basic and convenient way of risk transfer. Insurers help people and business protect against the loss of a car, house, jewellery; the loss of life, commercial property; the loss of business; and takes care of more complex property and casualty loss-protection needs. Insurers are in the business of providing business and people with financial stability. Insurers typically cannot replace the item lost but can provide financial compensation to address the economic hardship caused by the loss.

If you think of all aspects of life, they include exposure to risk. Individuals and businesses have options available to them to accept the consequence from the given risk, or seek insurance coverage in the event of a loss, thus reducing that exposure. Those who do not obtain insurance coverage are therefore responsible for the full loss, whereas those who procure some insurance ultimately end up transferring the risk to another organisation, most