Insurance and Risk Management

Every one of us faces a host of risks every day. Driving a car, eating in a restaurant, crossing a busy street, owning property, and sometimes just breathing constitute acts of faith that can carry significant risk. When adverse events might cause losses that can be quantified in dollars, we can anticipate them and manage them to mitigate the consequences.

A clumsy visitor trips on the rug in your front hall, falls, and considers retiring on the proceeds of this misadventure. Or, your dog takes a tasty bite of your neighbor with the predictable ill effects: to the neighbor, not the dog (we hope). Or, you fall down stairs and are unable to work for a year. Avoid sleepless nights and evade these and other potential pitfalls by managing your risks.

Managing risk can be done in several ways. Once you've identified a risk, you can elect to:

• prevent it -- by, for example, practicing good fire safety
• avoid it -- by, for example, hiring a professional to trim your trees
• spread it -- by, for example, backing up your computer files and keeping the copy at a separate location
• retain it -- by assuming that certain losses are just unavoidable costs to be absorbed
• transfer it -- by sharing the risk with an insurance company

In most cases, risks that you can't readily handle or predict are best transferred to a reliable insurance carrier rather than retained by you. You're no doubt already familiar with the typical personal and/or commercial lines of insurance such as homeowner, personal auto, life, disability, health and business owner's coverage. These lines can protect you from varying degrees of risk depending on the likelihood or probability of an adverse occurrence. Probability computations are the stock in trade of insurance underwriters. Their ability to reckon the chance of perils and hazards will set the market price for your insurance coverage.

Planning Tools Here's an Insurance Policy Inventory Worksheet that will help you sort out what insurance policies you now have as well as where they might be located.

Insurance comes in all sorts of flavors. In addition to private insurance (homeowner's, health, liability, malpractice, fire, flood etc.) we also have public insurance (the FDIC, for example), and social insurance (Social Security, Medicare, Unemployment and even Workers' Compensation). Insurance is a stringently regulated industry, largely at the state level. But globalization and a rapidly changing legal environment are presenting challenges to this beneficial industry. Environmental concerns, AIDS and terrorism are among the conditions that will influence insurance going forward.