Risk Management is now rising as an important field of insurance. The risk management involves loss control, loss financing and risk reduction by identification, measurement, analyzing and controlling of risk (uncertainty or loss). Insurer transfers the risk to reinsurance companies. Risk reduction also become possible through better forecast and diversification of risk.
To known where does risk exist is the identification of the risk. The risk may be relating to property, life, liability and nature which could happens from Fire, theft, damage, natural calamities etc. The risk is identified on the basis of accounting system, economic and financial factors, reputation, regulation, properties, and liability risk. The risks are managed by accounting guidance, providing minimum interest rates, premium calculation and knowing the anonymous source of risks.
Need and Objectives of Risk Management
Risk management is important to prevent the financial tragedy and to achieve the goals of capital management. It helps in good performance of the insurance companies and helps in carrying out the duties of care, loyalty and good faith. An Insurance company could beat the competition present in the market by proper planning of risk.
Factors on which Risk Depends
Risks of insurance companies depend on the type of financial instrument they have bought for the investment of their client’s money for the timely payment of claim. These risks might be high inflation, volatility in capital markets, bankruptcy, etc.
For example investment in equity market is more risky than the investment in the debt instruments , fixed deposits. So, fund managers diversify the money of their customers more and more to minimize the risk associated with their investment.