Perspectives

Risk Mitigation Strategy: Should You Transfer or Not?

Mitigation StrategyThe transfer of risk to others, as a method of risk mitigation, remains a very topical issue.

When it comes to risk management processes, the core element will always be risk mitigation. It includes four mitigation methods, namely:

  • Eliminating the risk factors
  • Avoiding the risk altogether
  • Accepting
  • Transferring the risk to another party

As the last element, transfer remains one of the most misunderstood factors in risk mitigation. Read on to learn more about the scheme.

When You Transfer the Risk

Transferring the risk, according to Versitrax.com, provider of case management solutions, often equates to insuring the risk. For example, the law often requires the following: professional indemnity, employers’ liability, CAR policies, third-party liabilities, and officers’ liability.

Most insurers remain very specific with the risks they are willing to cover. This also includes the exclusions, which apply against those risk events. In such cases, the owner remains responsible for the management of residuals (uninsured items in the first place). It is very important that you read the insurance policies in detail to determine the residuals.

Insurance, however, is not always the best way to transfer risks. Some owners prefer to transfer their risks to another party. It is during such instances that misunderstandings arise or may result in misusing the technique.

When Do You Misuse?

Most risk owners immediately assume that the obligation also comes with the transfer fully. On the contrary, it rarely does, despite the contractual instrument used.

Some owners also do not allow the cost to fulfill its own obligations. For example, they ensure that the party receiving the risk has the capability to properly manage the risks. They should also make sure that the party in question can continue effective management.

Misunderstanding the Risks

Owners do not dwell much on understanding the whole concept since they are supposed to transfer the risk to a party competent with risk management. Most, preferably, should be more suitable compared to the original risk owner.

The primary goal of risk mitigation is at least twofold: managing the risk completely and being cost-efficient in terms of mitigation expenses.

Transferring of risks is a vital element of risk management strategies. Done right, with the help of professionals, you can benefit the most when you understand the risks.