Consequential Loss In Risk Management

Actual and Consequential Losses

Actual loss is a loss incurred as a result of the insured property being entirely destroyed or damaged beyond recognition an cannot be repaired. It refers to the actual costs or expenses arising from the claim. It is a direct financial loss as it involves damages or destruction or theft to the property, thus for instance, if a building catches fire and is physically damaged, this is a case of direct loss.

A loss that occurs as a consequence of the damage is called consequential or indirect loss. In other words, it is the amount of loss arising as a result of not being able to use business property or equipment as it is damaged or stolen. It is financial loss. For instance if an office building is damaged by

Insurance covers the possibility of unexpected eventualities that might happen in future. Life Insurance and Non-Life Insurance protects against unexpected eventualities. Life insurance covers the family of the person and non-life protects properties, health and car insurance.

Insurance is a hedge that protects against various kinds of risks faced by people or firms such as death, illness, damage to property, assets etc. Thus financial goals will not be hindered due to the occurrence of any unexpected eventuality.

The Risk Management Process

Risk Management is an effective tool to plan, evaluate and implement a risk management program to deal with financial and other losses. Risk management is beneficial to all kinds of concerns encountering losses, such as businesses, non-profit organizations and individuals. It is a dynamic process.

The risk management process plans for risk coverage before, during and after losses. When a loss occurs, an insurance claim should be filed and the amount of loss should be estimated.

Steps in the Risk Management Process:

• Analyzing and estimating the probable loss.

• Selecting the most effective ways of controlling financial loss and implementing

Thus it should not be assumed that all risks are unavoidable. This means that risks can be prevented by taking by taking some measures to avoid such risks. For example, an accident can be averted if a person does not move out of his house or does not ride a vehicle.

• Loss Control

Loss Control is the second method used to minimize risk. It utilizes certain ways to control the number of times and the impact of losses. Loss control aims at loss prevention and loss reduction.

-Loss Prevention: It is said that “Prevention is better than cure”, so loss prevention provides loss from occurring. The objective of loss prevention is to minimize the impact of loss so that the frequencies of losses that occur are reduced. For instance, individuals can prevent accidents if they drive carefully or if traffic education is taught to the people, this will reduce the intensity of accidents.

-Loss Reduction: An important objective of handling risk is to minimize the intensity and frequency of losses of it occurring. For instance, an educational institution can install a fire extinguisher to prevent fire from spreading in case of a short