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Organizations seek to minimize their exposure to loss by applying risk management strategies. The most common of these is risk management insurance, which protects the organization by sharing the exposure with an insurance company in exchange for a premium. The main types of risk management insurance include liability and property insurance, and secondary types can include coverage for natural disasters that are not part of normal property insurance, such as flood or earthquake insurance. These types of coverages are often referred to as catastrophe insurance. On the liability side, a common type of secondary risk management insurance is directors and officers (D&O) coverage.
The type of risk management insurance an organization might require is closely related to the industry it is a part of and how it is organized. For example, a manufacturer might need not only property insurance but also a specialized liability product such as products and completed operations coverage. It might also require special coverage for product in transit, for tools and equipment away from the company’s property or for specialized equipment. An organization that relies heavily on a single, key person might consider key man coverage, which is a life and disability insurance product, and charitable organizations often seek to protect board members through D&O coverage.
In addition, geography can play an important role in the types of risk management insurance that are appropriate. Earthquake insurance is a popular add-on to property insurance in places that lie along active fault lines. Flood insurance is often part of the risk management insurance package in coastal areas or inland areas specifically designated as high-risk by a governing body. In many areas that are at risk for wind or hurricane damage, those coverages must be added separately to the property insurance policy.
Geography also comes into play when political risk is factored in. Many multinational companies employ risk management strategies to help them evacuate their personnel in case of political unrest. Companies that have employees in high-risk areas even include hostage recovery coverages in their risk management insurance packages.
One line of risk management insurance that has grown is cyber-risk coverage. Companies have grown more and more aware of the possibility of computer-based theft, also called cyber theft, which is not limited to the theft of funds. Often, it is the theft of sensitive client or member information that is the target. Companies can find themselves liable for the loss of this information if it is stolen and causes damage to the client or member. Cyber-risk coverage has become a bigger part of many companies’ risk management programs.
There are nearly as many types of risk management insurance coverages as there are risks in the world. Most of them are available through reputable insurance carriers, but occasionally, an organization will come across a unique or extremely rare exposure. When that happens, insurance companies are sometimes willing to develop a new coverage for that specific situation. Often, those situations become more mainstream, and a new line of coverages is born. For that reason, risk management insurance is part of an ever-evolving line of coverages that help organizations reduce their exposure to loss.
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