Managing Your Risks

Though insurance can play an important role in helping you manage your financial risk, should something go wrong, it is still your responsibility to protect your property and assets to minimise your risks, by taking all the steps you can to make sure any potential preventable risk has been covered.

Paying an insurance premium is not a method of transferring risk away from you and onto an insurer. Insurance is a way of compensating you for the loss when an insured event occurs, provided that you have managed the foreseeable risks.

It is a condition of most insurance policies that the policyholder has taken all reasonable precautions to manage any risk to their property and business, and that they have declared any potential risks to the insurer at the time they are applying to take out an insurance policy.

Examples:
Home Owners:

Have a duty to maintain their property and minimise potential risks, such as overhanging trees that may fall on their house and damage it, or blocked gutters which cannot drain water away from the building and may increase the risk of storm damage. Hail can cause a lot of damage to a roof, but well-maintained roofing is designed to resist major damage. If your roof hasn’t been properly maintained, if it is rusted, structurally unsound or already damaged, it may be easily damaged by hail and cause significant damage to the interior of your house. If you then tried to make a claim on your insurance policy, you might find that claim has been denied or your payment reduced because you haven’t maintained your property enough to manage this foreseeable risk. Also, houses should have effective security in place.

Business:

Through the financial processes of a business, a business needs to make sure that their financial system and processing has had its Risks of loss mitigated. What this means is that their manual systems or electronic (software/hardware/internet/intranet/LAN or WAN) and human systems have checks and balances so that theft cannot occur.

Example of Fraud – by a lone Employee

An employee who processes invoices also has access to the supplier creation system. The employee sees that when invoices are approved for payment, the financial controller examines the largest payment in detail and then signs the rest. The employee creates a false supplier and makes many small payments totalling thousands of dollars over several months.

Actual extreme example – Clive Peters liquidation and sale after the CFO stole $19 million

Read more here

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