Risk Management and Insurance
Imagine that you are the owner of a big company, who has been in profit for a long time. From the laborers working in your company to the big officer, all are loyal to their work, people like your company's products. As a result of which you get good revenue.
Imagine that one day suddenly a global epidemic comes and everything suddenly changes. Your supply chain is interrupted and your sales decrease. You also have to face such situations which you never imagined in dreams.
Imagine one more, You built your dream house and you have invested your entire life's income in making this house. You have also taken some debt from banks to build this house. Your house is ready and now you are living with your family with happiness in this house.
One day you have gone to travel somewhere with all your family members and on the same day a strong earthquake occurs and your dream house is completely destroyed. Is it possible to imagine such a condition?
Many times humans have to face many such sad moments, which no one likes to imagine. This is such a fact that if a person faces such a difficult situation, then the remaining part of his life becomes quite difficult.
Risk Management is the medium with which you can predict the future odd events and the Economic Loss caused by these events. When you know the estimate of such Economic Loss, you can prepare to avoid such disadvantages with the help of Insurance. So in today's article, we will know in detail the importance of Risk Management and Insurance.
Risk Management
Risk Management is a process in the context of Insurance, with the help of which problems of any person, organization, company etc. are understood. This is then assessed the economic loss caused by these problems. Finally, possible possibilities are fixed, to save individuals, institutions, company, etc. from economic loss.
Process of Risk Management
The Risk Management Process includes three main stages:
Risk Identification: In the first phase of Risk Management, individuals, groups, company, etc. have to identify possible problems, which may affect their objectives. These problems are called "Risk".
Risk Evaluation: In the second phase of Risk Management, individuals, groups, company, etc. should evaluate the severity of each risk. This evaluation is done based on Risk and possibility of Potential Effects.
Risk Mitigation: In the third phase of Risk Management, individuals, groups, company, etc. must develop a strategy to reduce those risks. These strategies may include completely eliminating the risk, reducing risk or reducing risk loss.
Importance of Risk Management
Risk Management is important for any individual, group, company etc. because it helps in achieving their objectives and reducing losses. Without Risk Management, any person, group, company etc. can be affected by unexpected events, causing loss, failure, or even bankruptcy.
Example for Risk Management
The risk for different individuals, groups, company etc. is different. We are understanding Risk Management from the point of view of Insurance, so we are presenting the related examples for this.
Suppose you are planning to start a factory to manufacture a product. You can always make profit from your factory, if all the circumstances over time remain compatible with your thinking. But really this does not happen.
Here I want to tell about the incident in a factory. Production work in a factory was going on with normal clock. One day suddenly an accident occurs in that factory, due to which some workers working in that factory die and some are injured. As a result, the workers working in that factory go on strike.
In such a situation, the factory has to face a big challenge. Because on one hand the factory owner has to pay the expenses of the treatment of the injured workers, on the other hand he has to pay compensation to the families of the dead workers and the strike crisis is a big problem for the future of the factory.
I also want to mention another incident. A person has the financial responsibility of his wife and two children as well as his parents and if that person dies due to an accident. Think and see that what difficulties will such a family face?
Now for a moment you assume that you have built a luxurious house. To build this house, you have spent a huge amount from you and have also spent a large amount from the bank as a loan. One day your luxurious house breaks down due to the effect of a sudden earthquake.
Any person, group, company and others can be victims of many such unlikely events. Any person, group, company or others who have to face any such unnatural incident have to suffer big financial losses. Risk Management is required to avoid economic loss due to any such unlucky incident. With the help of which important steps are taken to avoid such disadvantages.
If we talk about Risk Management for a person, then the first phase of Risk Management is to assess the problems. If a person has the responsibility of children, then the expenses of children's studies, marriage and everyday needs can be a problem. If the same person has the responsibility of his wife, then the expenses incurred in the needs of the wife's entire life can be a problem for that person. The problem here means that if that person dies, then his dependents will have to face the economic crisis.
Now that the problem is assessed, then it should be assessed that if the person dies then how much will it cost to meet the above responsibilities and needs? This is the second phase of Risk Management for that person.
When a person comes to know about the expenses arising due to problems, then options are considered to choose ways to deal with it. This is the third and last stage of Risk Management for that person.
Role of Insurance in Risk Management
Insurance plays an important role in Risk Management, as it provides a Financial Safety net to individuals and organizations to help mitigate potential financial losses associated with various risks. Let us understand how insurance plays an important role in Risk Management-
Providing Financial Protection: Insurance Protects the insured against financial losses that may occur due to unexpected events, such as accidents, natural disasters or theft. It helps individuals and organizations achieve their financial goals and prevents them from becoming financially ruined.
Transfer of Risk: Insurance Provides a means of transferring risk to the insurer, who agrees to compensate for the financial loss in exchange for a fixed premium. It helps individuals and organizations reduce the risk of large financial losses that they may not be able to bear on their own.
Risk Prevention: Insurance companies work with individuals and organizations to promote risk prevention. They can provide recommendations for implementing safety measures and avoiding risky behaviors. This helps in reducing the incidence of risk and reducing the cost of insurance.
Prompt settlement of Claims: When an insured makes a claim, the insurance company works to ensure that the claim is settled as quickly and fairly as possible. It helps individuals and organizations to overcome financial difficulties in the shortest possible time.
Providing Peace of Mind: Insurance provides peace of mind to individuals and organizations, knowing that they are financially protected. This helps them focus on their goals and pay attention to other aspects of life.
Due to these aspects, insurance is an essential part of risk management, which helps individuals and organizations to have a carefree and secure future.