Find Out How Risk Management Can Benefit Insurance Companies
Risk management for insurance refers to the process of using risk assessments to understand what could go wrong in a particular situation and then reducing these risks by various methods.
Insurance companies use risk management to cover their clients effectively and reduce the premiums that they charge, but insurance companies themselves are exposed to a significant amount of risk that they need to mitigate.
For example, risk is incurred by the insurance provider when they gather and store the sensitive data of clients. Misplacement of this information invites the possibility of lawsuits.
Should You Be Concerned About Risk Management?
The function of risk management is to avoid – or ‘manage’ – risks, as the name suggests. In doing so, companies can protect themselves from all kinds of detrimental situations, such as being sued for not properly securing customer data or being penalised for not adhering to regulations.
A good risk management protocol can enable insurance companies to accurately predict what could go wrong, identifying potential problem-causing variables such weaknesses in security, so that these problems can be proactively prevented.
Some of the benefits of risk management include:
- Creating a safer working environment
- Decreasing legal liability
- Helping identify the company’s insurance requirements
For insurance companies you can further include:
- Protecting customer data
- Ensuring regulations are not breached
- Ensuring the rules laid out by banking partners are followed
- Creating a safer working environment
- Decreasing legal liability
- Helping identify the company’s own insurance requirements
- Mitigating risk to client’s assets
- Creating a safer working environment for employees to avoid potential lawsuits
As you can see, the benefits to both insurance companies and companies more generally are multitudinous and significant, but for insurance providers in particular, risk management is incredibly important.
Why Is Risk Assessment So Important?
Risk assessment is the process by which an organisation identifies and studies eventualities that harm their ability to do business. Lawsuits, data breaches, and workplace injuries are just a few of the risks insurance companies are exposed to, and these need to be identified through risk assessments to preemptively address them.
Once identified, these eventualities are analysed to determine how likely they are to occur, how significant the impact of their occurrence would be, and finally to determine the tolerability of the impact of each of these potential occurrences, and tackle the issues based on this hierarchy of tolerability.
The risks that the business cannot tolerate are, of course, considered the most important and addressed first. This would include risks relating to data breaches, and most successful insurance companies ensure that they have risk management consultants on hand to protect them from such risks and avoid costly lawsuits.
Insurance companies are also at risk due to constantly changing regulations in the industry, and risk management as it relates to insurance firms places a strong emphasis on understanding these changes and the impact they may have on their business.
Steps To Perform A Risk Assessment
A typical risk assessment for an insurance company would look something like this:
- First, the organisation would need to identify the technology assets that are used to create, store, manage, and transmit sensitive data. A designated risk manager would need to be assigned to this task, as well as managing the overarching security program.
- A risk profile is then created for these assets. Perhaps someone has accessed some information without the necessary authority, or perhaps sensitive information has been disclosed, misused, or altered for some reason.
- Interconnections between assets are mapped to uncover the scale of the problem and to prevent the spread of the problem.
- A decision is made regarding which assets need to be addressed and in what order based on their respective risk profiles. Current protocols must be thoroughly reviewed to determine whether additional security measures are required. Network and software designs need to be analysed by a professional to identify potential weaknesses. Training employees can also form part of this stage as they are less likely to misuse data or otherwise invite risk if they are properly trained in security practices.
After Assessing, You Need To Take Action
- A risk management strategy for each asset is developed. If there is a weakness in the design of a particular piece of software, this needs to be fixed. Training employees can also form part of this stage as they are less likely to misuse data or otherwise invite risk if they are properly trained in security practices.
- Vulnerabilities are minimised following the implementation of the solutions.
- Risks and vulnerabilities are monitored on an ongoing basis. Because technology is always advancing, regulations are always changing, and cyber criminals are always becoming more sophisticated, risk management must be an ongoing concern. Risk management protocols should be implemented at least once every six months if the insurance company wants to maximise their immunity to risk.
Data breaches and security risks are not the only risks insurance companies are exposed to, however, and this is just one of the most common risks that insurance providers need to be aware of and mitigate. Other risks include; financial risks, reputational risks, legal risks, third-party risks, and quality risks, to name a few.
Does All Of This Still Sound Much Too Complex?
Insurance companies are certainly exposed to an increased level of risk when compared to the average business – which is ironic because insurance companies are in the business of mitigating risk!
Risk management for insurance is therefore crucial and insurance firms must ensure they are protecting themselves as well as those they insure because the consequences of something as seemingly insignificant as a bit of sensitive data slipping through the cracks could be severe.
RCAS are risk management experts that provide battle-tested protocols to reduce our client’s liability, and we are particularly well equipped to assist insurance providers with their crisis management systems.
We empower our clients and enable them to be confident in their protection from risk by providing them with simple, repeatable, and reliable frameworks that can withstand any eventuality.
Reach out to us today and one of our friendly advisors will explain how we can protect you from the next crisis.