In an exciting collaboration between Minet Malawi, Britam, and The Daily Times - Malawi's leading newspaper - we are thrilled to introduce a groundbreaking initiative that will redefine your Wednesdays. Welcome to the Insurance Insights Column – a weekly rendezvous with the world of insurance and contemporary issues that matter. Every article aims to illuminate the intricate landscape of insurance products and relevant topics that impact us all. The articles will be educative at all levels, catering to both practitioners and non-practitioners.
As published in The Daily Times (Malawi) on April 10th, 2024
Ask any primary school teacher and they will probably tell you that teaching toddlers is not a joke. Oftentimes, kids ask questions that have no answer at all. Imagine a pupil asking his teacher this question, ‘excuse me, teacher, why is an eye spelt without an i?’ If you were the kid’s teacher, what would you say? Difficult question, isn’t it?
Similarly, risk management is a difficult subject to understand.
Talumba Dairy Limited is a large dairy manufacturing company in Lilongwe. For the past three years, the number of workers injured on the job has been increasing. This, in turn, increased the company’s workers compensation costs and lawsuits. There have, also, been numerous incidents of fire losses and theft of supplies from the company’s premises. Management engaged a consultant, who recommended that the company should introduce a risk management programme to deal with the problems.
After implementing the programme, the firm saw dramatic fall in job-related injuries, employee thefts and fire incidents. The company’s profitability improved tremendously.
The example above, clearly, demonstrates the importance of risk management programme. Private and public institutions, alike, recognize benefits of risk management. No business or person can, today, survive without practicing risk management.
So, what constitutes risk management?
In a lay man’s language, risk management can be seen as the task of handling and controlling risks that requires a person to take preventative and corrective measures. Risk management involves five steps namely - risk identification, risk evaluation, selecting the right tool of handling the risk, making use of the tool and conducting regular performance appraisal.
Risk management is not an ad hoc exercise. It is, rather, a continuous exercise. Suffice to say that every risk management programme has a starting point. But the process has no end.
Traditionally, the concept of risk management has been considered synonymously with insurance. Risk management as a security tool provides a platform from which an organization or person makes decisions.
Managing risk is significant in ensuring social, political, and economic development of a country or organization. The significance of risk management lies in the fact that it helps organizations and individuals alike to tackle all those risks, which can threaten one’s assets or earning capacity.
Although different people have different risks, the procedure of applying the concept of risk management is identical.
You will agree with us that human beings have a natural tendency to dream of a brighter and more prosperous future. One psychology lecturer at Chancellor College in Zomba (now University of Malawi) told his class that the greatest fear that man can ever have is the fear of shattered dreams. Gospel truth. Isn’t it?
With a raise of hand - who does not want to be wealthy or educated or admirable in life? Tell us - who does not want to have good health and long life or good friends?
As human beings, we all want to experience the best side of life. But then, the future is uncertain and life is obviously risky. Risks cannot be completely eliminated. However, sensible handling of risks can help in minimizing negative consequences of various risks in our lives.
There are three ways of sensibly handling risks. Risks can either be avoided or reduced or transferred. One can avoid risk by avoiding the causes of risk. Haven’t you heard that ‘prevention is better that cure?’ Where do you think this phrase came from? Take it or leave it - the saying has its origin and roots in risk management.
For instance - using our case above - Talumba Dairy Limited, fearing the risk of survival may not attempt to develop a new product but prefer to follow the leaders in the dairy industry. This, obviously, may ensure survival of the business but surely not maximization of economic gains.
The other way of managing risk is to reduce it. This can be done by adopting actions that reduce either expected costs or frequency. Or both. In our example, above, Talumba Dairy Limited can reduce job-related injuries by, inter alia, providing employees with effective training and appropriate work suits and boots.
In life, there are several risks, which due to their nature, can neither be avoided nor reduced. The only way out is to transfer or shift the risks to those who are willing to bear them - one such method is insurance.
Views from the top are that although man is a natural risk manager, it is important to bear in mind that decision making based on an integrated approach yields better results than piecemeal approach. Modern corporate governance dictates that businesses should employ an all-embracing risk management programme that includes insurance. Talk to us. We are here to serve.
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