Risk Management and Insurance Basics

Welcome to Jeevan Bima Bazaar! Imagine that you are the CEO of a company that has been growing profitably for several years. You have a great team, loyal customers and great revenue streams available to you.

You are having a good life. But imagine that suddenly a global pandemic comes and suddenly everything changes. Your supply chain gets disrupted and your sales drop. You also have to face such situations that you are forced to lay off employees even if you don't want to.

Why did you have to face this situation? You have faced such a situation only because you have forgotten one important thing which is called - Risk Management.

Risk management is as useful to your business as a crystal ball. It empowers you to identify potential threats and prepare to deal with the damage caused by those threats. It is like an oxygen cylinder for the life of your business which helps your company to survive various kinds of crises and thrive in the modern competitive market. In this article on Jeevan Bima Bazaar, we will go through the basics of Risk Management in detail, so that you can decide how you can apply it in your business.

But before you make up your mind on this important subject, I think it necessary to clarify a few things. Don't think of Risk Management as a dry, boring or intimidating subject, it can be a fun subject for you. Provided that this subject is taken like a chess player or a puzzle. By learning the rules of Risk Management, understanding your opponents, and anticipating their moves, you can stay one step ahead of the competition and win.

So grab a cup of coffee or tea in your hand and get ready to become a Risk Management pro. This article is filled with valuable information and lots of takeaways (like funny jokes) on the subject. So let's start our journey on this interesting topic of Risk Management.

Risk Management: Identifying potential hazards to your family, social or business, evaluating those potential hazards and taking steps to reduce or eliminate those hazards. This whole process is called Risk Management.

In general, you can understand it in such a way that you install a large generator system at your business place for continuous supply of electricity. It is essential to your work and has a positive impact on your business. But if rain water falls on your generator, there are chances of it getting partially or completely damaged.

The generator is your own property, because of which your business benefits, but rain water can be a big risk for your generator. A wise man makes arrangements to protect the generator from water even before it starts raining.

Now let us look at the second type of risk for this generator. Suppose one day your generator catches fire or your generator is stolen. So how will this affect your business? Such a possibility can also be a big risk for you. This type of economic risk also needs to be managed. Insurance Plans can be bought to manage such risks.

If the generator is an important item for you, then assessing its risk, then evaluating it for loss and finally managing it is called risk management.

Note: Here I have presented the generator as an example. I know generator may not be very important to you. But for you your company, company's heavy machinery, expensive car, house, financial future of your family etc. may be important. So whatever is important to you, you can adopt it for risk management.

There are a lot of Risks that an individual or organization has to face unexpectedly. Some of the important ones are as follows:

Natural Risks: You may face floods, storms, earthquakes and other natural calamities anytime and anywhere. Due to these calamities, from an ordinary person to a big organization, it gets destroyed and ruined. This type of Risk is kept in the category of Natural Risk.

Physical Risk: The most important of any person is his family, business etc. If he dies or becomes a victim of some accident or disease, then his family, business, etc. can have a very bad effect. This type of Risk is known as Physical Risk.

Financial Risk: Market fluctuations, inflation and interest rate changes affect a person's life. This type of Risk is kept in the category of Financial Risk.

Legal Risk: If a person suddenly has to face a lawsuit. Then due to this your business or your accumulated capital can be badly affected.

For example, someone gets hurt or his property is damaged by your vehicle. That aggrieved person sues you. If the court orders a large amount of compensation. So it will adversely affect your business or your accumulated capital. This type of risk is kept in the category of legal risk.

Reputational Risk: Suppose a person or organization spreads some kind of negative publicity regarding you or your business. If you are in a prestigious position or you are the owner of a company, then due to negative publicity by people, your image can be damaged and your brand value can be affected badly. This type of risk is kept in the category of reputational risk.

Suppose a person builds a luxurious house by spending a major part of his earnings. After some time, there is an earthquake or flood in that area. Due to which his house gets destroyed. Imagine such a scenario, will the person be able to bear the loss of the house?

In the same way, one day suddenly a person comes to know that he has got a major disease. The cost of whose treatment is out of his budget. Think about what will be the condition of such a person.

All the examples given above and don't know how many such examples can be there which can cause you unbearable loss. Such unforeseen events can bankrupt a person or organization.

All such Risks can be managed with the help of Insurance. Insurance, as per its terms, helps in protecting an individual or entity from financial losses due to unforeseen events.

The insurance company actually divides the same type of risk among many people and from among so many people, it gives financial help to whoever is exposed to the risk.

Let us understand our point with an example. Suppose you buy insurance of ₹ 5 lakh during a trip. So for this insurance you have to pay some premium. Others like you also buy travel insurance of ₹ 5 lakh. In this way, a huge amount gets accumulated with the insurance company.

Some people who die after the end of the journey. The insurance company pays him ₹ 5 lakh. That is, the insurance company provides insurance benefits by sharing the risk of one person with many others.

There are many benefits of risk management and insurance, some of them are as follows:

1. Financial losses due to unforeseen events can be compensated.
2. A person's self-confidence increases and he feels peace of mind.
3. Better ability to manage risk and make informed decisions is developed.
4. Better financial stability and security prevails.
5. There is less exposure to risks and potential liabilities.

If you are a Life Insurance Agent and you want to educate your customers about the importance of Risk Management and Insurance, you can download the files given below. All these files are provided for your personal use only.

You can use all these files after downloading button given below. However, before using our files, you should read their terms and conditions file carefully. The term and condition file is given in the download folder in PDF format.

Risk management is an important component of insurance, and involves identifying, assessing, and managing risks. Insurance is an essential tool for managing risks and protecting individuals and organizations against financial loss from unforeseen events. Effective risk management and insurance can provide many benefits, due to which one is filled with confidence and feels peace of mind.