CFP

Principles of Risk and Insurance - The Risk Management Process

RISK MANAGEMENT PROCESS
The objective of risk management is to choose efficiently among methods to handle risk so as to avoid catastrophic losses. Risk management includes insurance management, but it should be used to measure both insurable and non-insurable risks.

The process of risk management has six distinct steps:

STEP 1- Identify risk management goals and objectives
STEP 2- Gather pertinent data to determine the risk exposure
STEP 3- Analyze and Evaluate the client's status
STEP 4- Develop and Present risk management recommendations
STEP 5- Implementation
STEP 6- Ongoing Monitoring

Practice Question:
Which of the following is not one of the steps in the risk management evaluation process?

A. Recommend appropriate insurance products to cover risk exposures
B. Meet with the client and re-evaluate their situation on an ongoing basis
C. Obtain copies of the client's current insurance declaration pages
D. Select only the highest deductibles to keep premium payments affordable

Answer: D
While considering various deductible amounts to keep premium payments affordable is important, policies should not only be selected with high deductibles. The deductibles need to be at sustainable and reasonable levels or the insured can be faced with insufficient liquidity. Answers A, B, and C are all steps in the risk management process.

When presenting risk management recommendations, essential coverage should be purchased first such as life, disability, health, auto, and homeowners. Severity is more important than probability.



comments powered by Disqus
Trading Center