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T H E C A N A D I A N
HOME INSPECTOR
INDUSTRY NEWS
The Importance Of Understanding Risk
Risk is a part of life. Home inspectors need to
understand the risk they face and how to man-
age it. Failure to do so can result in losses and
even the failure of a business. This article is
a basic primer on risk and risk management.
Home inspectors can use the material to get a
general perspective and then sit down with their
insurance representative to develop a specific
plan.
What is a Risk?
Risk, in insurance terms, is the possibility of a
loss or other adverse event that has the potential
to interfere with an individual’s or organization’s
ability to fulfil their obligations or mandate, and
for which an insurance claim may be submitted.
What is Risk Management?
Risk management ensures that an individual
or organization identifies and understands the
risks to which they are exposed. Risk manage-
ment also guarantees that the person or organi-
zation creates and implements an effective plan
to prevent losses or reduce the impact if a loss
occurs.
A risk management plan includes strategies
and techniques for recognizing and confronting
these threats.
Good risk management doesn’t have to be
expensive or time consuming; it may be as
uncomplicated as answering these three
questions:
1. What can go wrong?
2. What will I do, both to prevent a harm from
occurring and in response to a harm or loss?
3. If something happens, how will I pay for it?
The Role of Insurance in Risk
Management
Insurance is a valuable risk-financing tool. Few
individuals or organizations have the reserves
or funds necessary to take on the risk them-
selves and pay the total costs following a loss.
Purchasing insurance, however, is not risk
management. A thorough and thoughtful risk
management plan is the commitment to prevent
harm. Risk management also addresses many
risks that are not insurable, including brand
integrity, potential loss of tax exempt status for
volunteer groups, public goodwill and continuing
donor support.
Purchasing insurance is not risk
management. A thorough and thoughtful
risk management plan is the commitment
to prevent harm.
The Risk Management Process
Managing risk makes good business sense. An
effective risk management program also helps
you to understand and be prepared for the risks
you face before losses occur. That preparation can
mean the difference between thriving and failing.
No matter how you choose to manage your risk
and reduce or eliminate potential losses, it is
important to document the steps you take and
present this to your insurer. A risk management
plan without proof is of no use to an insurer.
There are six basic steps in the risk management
process:
STEP 1: Identify potential expo-
sures to loss
Every activity of an individual or organization
poses a risk. Before you can control risks and
decide what to do (if anything), you must identify
the risks.
Some risks are generic and inherent to many
organizations. Think of the possibility of a visitor
slipping on a wet floor, an employee embezzling
the organization’s funds, or a former employee
or client alleging a violation of rights.
Other risks are unique to you and based upon
the services you provide. If it can happen in your
business, you should list it during this step of the
risk management process.
Where to start
• List your business’ objectives (key practices
that must be in place so the business will not
fail), activities, assets and key stakeholders.
Then determine the associated risks.
• You can also consult other sources to get a
picture of your risks, including:
• Your experience and your business’ experience
• Past losses/claims (your insurance agent or
broker may be able to help)
• The experience of similar businesses or those
in a similar industry
• Past accidents and incidents
• Statistics
• Industry associations
• Employee feedback
• Complaints and/or suggestions of customers,
the public and other stakeholders
• Consultants
STEP 2: Evaluate the risks; look at
the possible frequency and sever-
ity of claims
You may feel overwhelmed after completing the
first step of looking at your exposure. Assess-
ing the probability of each risk becoming reality
(frequency) and estimating its possible effect
and cost to the organization (severity) are the
solutions.
For example, if you have a home-based busi-
ness and most of your interaction with custom-
ers is over the phone or via email, you would
probably have a lower chance of many or expen-
sive claims. (You can still have losses; consider
the courier who is delivering business papers to
your home and trips and falls on your sidewalk.)
Your risks would be less than, for example, a
bus company that transports senior citizens to
special events. In that case, there would be a
greater chance of incurring claims – you would
be driving on busy roads – and those claims
could be more severe – seniors can be of more
fragile health.
Of the exposures identified in step 1, consider
these questions:
• Which are most likely to cause a claim or
incident?
• Which would have the greatest impact on your
business, if they occur? A risk map may help
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