Principles.
1. Risks cannot be controlled or financed until they are understood. The first step in the risk management process is to identify the risks faced by an organization. Logically, in order to design an effective insurance or risk control program, you must first understand the risks.
2. Insurance is not a substitute for good risk management practices. Insurance is often confused with risk management, yet it simply transfers the risk to another entity, i.e. the insurance company. In reality, it is up to the organization’s executive team to proactively manage risk.
3. The purchase of insurance involves complex, highly differentiated solution alternatives. Making the decision based on price assumes insurance is a commodity, with no difference between financial strength, stability, coverage, or service.
4. Insurance does not cover all costs of accidental losses. Indirect costs, due to the impact accidents have on productivity, are not covered by insurance. These loss costs have been determined by numerous governmental agencies, private studies, and insurance company surveys to be equal to or greater than the direct loss that is paid by the insurance company.
5. In the long run, the only answer to reducing the total cost of risk, whether insured or otherwise handled, is to reduce or control losses. The investment of time to implement an effective risk management program provides a solid rate of return for an organization, impacting both the insurance and loss cost.