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Dealing With Risk

Risk is something we all face, in more ways than we can even imagine, on a day to day basis. It applies to every aspect of our lives whether we acknowledge and understand it or not. Why do you think your parents made you wear a helmet when you were riding your bike as a child? Because riding a bike is risky and the helmet is a way to reduce the risk of getting seriously hurt. There are numerous ways to deal with risk depending on the situation. As an insurance agency we specialize in helping our clients determine the best way to work around risk without it posing too serious of a threat. In this post we will go through the different strategies and how they apply to businesses and people.

There are many schools of thought when it comes to how many ways there are to deal with risk. The most common belief is that there are four ways to deal with risk; reduce, retain, avoid and transfer but some believe that there are more ways; the four I just mentioned as well as other methods like exploiting, ignoring and sharing but I will only be covering the most common ways in which people and businesses handle risk.

Reducing risk is most commonly used when risk simply cannot be avoided. For example, every day most of us get into our vehicles and drive into work and on our way we are faced with constant risk. From the other vehicles on the road, possible malfunctions within our own vehicle to hazards on the roads we use, the risks are everywhere and they simply are not avoidable. This is why we reduce the risk by driving the speed limit, using safety devices like seatbelts, brake lights, blinkers, headlights, airbags and mirrors. Businesses reduce risk by developing practices and procedures that will lower their risks like safety codes, comprehensive training processes and educating their employees on the risks they face and how to reduce them. 

Sometimes reducing the risk isn't enough which is why the transfer of risk, in many cases, is mandatory. The transfer of risk is where insurance companies come in. A contract is written between two parties where one party, the insurance company, agrees to accept the financial risk of loss. The transfer of risk is most commonly used when the risk of loss is too great for the insured, or customer, to accept by themselves. When referring to businesses, especially large corporations, some risks can cause millions of dollars of damages. If a truck carrying products across the country is involved in an accident not only could those products be damaged but other motorists could very easily get hurt if they are involved in the accident which causes costs associated with the accident to add up very quickly.

The practice of retaining risk is usually used when the risks are small because it's when a person or company is aware of a risk but does not transfer, reduce or avoid the risk. They are prepared to cover any financial losses associated with that risk. People who choose not to have health insurance are retaining health risks. Companies that do not purchase crime coverage are choosing to retain the risk of financial loss in the event of a crime. I don't insure my clothes or shoes even though they could become unusable due to stains or damage, I would rather pay for new clothes once than an annual insurance premium.

Avoiding risk is another common way to handle risk. Some risks cannot be avoided entirely but there are many that can. Businesses choose not to offer particular products or services due to high levels of risk. Online only companies are not only reducing their overhead operating costs but are avoiding storefront risks like customers slipping and hurting themselves or being burglarized. Most of us avoid risk by choosing not to engage in risky activities like drag racing, sky diving or any one of the many risky activities that some people choose to engage in and, hopefully, use one of the other strategies to cover.

At HD Insurance we are well versed on the many ways to reduce, retain, avoid and transfer risk. It is our goal to help our clients be in the best position they possibly can be in the event of an accident. Accidents are unexpected, unintended and can be detrimental to businesses and individuals if not dealt with properly before they occur.