Risk Control – Reducing Exposure Before Claims Happen
Ever come across a client who had minimal loss history but posed a high potential for future losses? That’s where risk control steps in. It’s about proactively identifying risk and deploying mitigation strategies before the claims occur
TL;DR
- Risk control refers to strategies designed to lessen the frequency, severity or unpredictability of potential losses.
- Vital in identifying potential hazards and mitigating their impacts in both personal and commercial lines.
- A common pitfall is assuming that risk control only means eliminating risks.
- A quick win for your agency is leveraging risk control measures to better serve clients and ultimately, increase client retention.
What Is Risk Control in Insurance?
Plain-language definition: Risk control is about identifying and assessing potential hazards, then putting measures in place to either reduce, eliminate, or accept the risks. It’s about being proactive and protective before anything bad happens.
Technical definition: Primarily located in the underwriting and claims sections of mid-to-large commercial insurers, risk control seeks to prevent accidents and losses before they occur. Although implementation may differ, emphasis is often placed on safety procedures and operational risk controls.
Key Related Terms to Know
- Risk Assessment – Process of identifying and analyzing potential issues that could negatively impact an individual, group, or organization.
- Risk Management – The process of identifying, assessing, and controlling threats to an organization’s capital and earnings.
- Risk Mitigation – The steps taken to eliminate or reduce the impact of a potential risk.
- Risk Transfer – Shifting the financial consequences of specific risk factors from one party to another, like getting insurance!
Common Questions About Risk Control
What types of risk management can risk control support?
Risk control supports many types of risk management, from operational to financial risk control. The goal is always to prevent losses and maintain a sustainable business.
What is the role of controls management in risk control?
Controls management in risk control involves identifying any gaps, framing control measures in a risk and control matrix, then implementing preventive controls or corrective actions as needed.
How to define risk control in simple terms?
You may define risk control as measures taken by a business to reduce risk from potential threats. It is the part of risk management that seeks to prevent losses or accidents before they occur.
How does risk assessment and risk control work together?
Risk assessment and risk control interact throughout the risk management process. After the identification of potential threats, risk control steps in to draft and implement strategies to mitigate these risks.
Risk Control vs. Risk Management
Comparison Area | Risk Control | Risk Management
|
Primary use case | Implement strategies to avoid losses | Wider process encompassing the identification, assessment, treatment and monitoring of risks |
Coverage / concept type | More specific, focuses on the control of risks | General and broader approach |
Typical exclusions | Excludes risk identification and risk analysis | Comprises all parts of dealing with risks |
Who is most affected by errors | Organizations with high-risk scenarios | All organizations, since all experience some sort of risk |
Common mistakes | Focused only on hazard control, ignoring financial or strategic risks | Over-emphasizing one area of risk at the expense of others. |
Real Claim Examples Involving Risk Control
Scenario 1: A manufacturing firm faced a high risk of workplace injuries. As part of their risk control measures, they mandated safety training for all employees and implemented stricter operational risk controls. Despite an initial cost, the company managed to significantly reduce accidents and claims.
Scenario 2: A retail grocery chain overlooked slips-and-trips risks within their stores. They eventually faced several liability claims. The company learned its lesson and introduced a risk control program, which identified risky areas and implemented protocols to prevent future incidents.
Scenario 3: An e-commerce platform didn’t consider risk control measures for data security, leading to a large-scale data breach. Amid heavy financial losses and reputation damage, they had to engage in extensive risk control efforts to re-establish customer trust and security.
Limitations and Common Mistakes
- Risk control measures may sometimes prove burdensome and costly in the short term.
- Companies might fail to align their risk control procedures with business objectives, causing inefficiencies.
- A lapse in regular risk control audits and assessments can lead to outdated control strategies.
- Limited understanding or underestimating the effectiveness of risk management can hinder appropriate control measures.
How to Explain Risk Control to Clients
Personal Lines client: “Think of risk control like taking steps to prevent accidents at home. Like installing security systems or fire alarms.”
Small Business owner: “It’s about identifying what could go wrong in your business, then putting in place measures to prevent those things from happening. It’s proactive protection.”
CFO or Risk Manager: “Risk control forms an integral part of your organization’s risk management. It assesses the identified risks and then decides whether to mitigate, eliminate or accept these risks.”