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A word from BRI Coverage Corp., The Independent Insurance Broker, on understanding risk today: Risk Management Economics. Risk used to be sort of an edu- cated guessing game. You relied on insurance to provide "adequate protection", paid a premium, and that was it. Today, risk has to be calculated. To the letter. Reliance on insurance just won't suffice anymore. Be- cause claims that were unheard of years ago are being brought forth every day and won. The number and variety of these claims are greater, with the cost of settle- ments escalating geometrically. No one can afford to be casual about risk anymore. The outrage- ous costs have shed a new light on risk. Particularly in the way that it's being handled. Management has begun to see risk for what it is - an important cost affecting the profitability of the company. In the past, the term "risk man- agement" was nonexistent, be- cause insurance was an administra- tive function. A policy was written and the premium came out of a book. Basically, a company had only three options to save money: to change brokers, to change in- surers or to change both. That was about all "managing risk" entailed. The dramatic rise in the cost of insurance has necessitated a more sophisticated and disciplined ap- proach to the management of risk. Risk must now be identified in advance. In order to protect your- self, you can't afford to speculate - you have to be aware of every possible exposure. Once identified and quantified you can see how much risk can be sustained and how much should be transferred. For every exposure, management has three options: to consider the risk as insignificant and not insure it, to transfer the risk entirely, or to strike a balance between self-assumption and trans- fer. The balance between not insur- ing, self insurance and full- insurance is one answer to cost- effective risk management. It opens up a new set of variables in the economics of risk management- variables such as taxes, invest- ments and cash flow. In effect, the economics of successful risk man- agement are dependent upon the methods of funding or non-funding you choose — the goal is to find the optimum position for your own circumstances. Risk management has changed the meaning and economics of in- surance. Those who truly manage risk use insurance as a tool, not as solution in itself. The proper ap- plication is entirely different — so are the results. BRI Coverage Corp., recog- nized as one of the most imagina- Write 208B on Reader Service Card tive brokers in the industry, knows this is the case. Rather than re- structure its present services and organization, BRI formed Risk Management Economics. Risk Management Economics consists of a select group of highly skilled financial and administrative ex- perts. Experts who work in close cooperation to refine and re-define the role of risk management in your company's insurance pro- gram. In so doing, it is now possi- ble to achieve maximum control of cash flow, tight supervision of claims and other risk expenses. All this really means is that the system can work on your behalf. If you agree with the concepts, then you'll probably also agree with our approach. Find out firsthand. Call Risk Management Economics at (212) 233-7171. KKSK 38 Maritime Reporter/Engineering News
