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 are educative at all levels, catering to both practitioners and non-practitioners.
As published in The Daily Times (Malawi) on September 18th, 2024
In everyday life, you and I face numerous forms of risks, ranging from death, injury, car crash, being mugged, machinery breakdown, theft of personal effects to loss of business following fire or machinery breakdown. The list is long. The world would have been a boring place to live in if there was no insurance. Thanks to whoever came up with the concept of insurance. Insurance, not money, is what keeps the wheels of life in motion.
Man, as a social animal, does not like uncertainty. He will do everything possible to avoid or eliminate risks. This brings us to today’s topic – risk avoidance.
Risk avoidance is one of the processes of selecting and implementing measures to modify a risk. Dear reader, believe me: risk avoidance or risk averse, as other professionals dub it, is at the center of the concept of insurance. Invite any insurer for risk management consultancy and they will probably tell you that the most basic method of dealing with risks is to re-organize one’s activities in such a way that the risk or risks no longer exist. In practice, this is either not possible or unsustainable. As economic agents, you and I can only avoid risks to some extent.
Some risks, such as fire, may be reduced, but will always exist to some extent. Theft by employee cannot be eliminated totally. Insurance research has revealed that no recruitment vetting can deter man from stealing. It is hard to decipher a person’s attitude.
The process of avoiding risks may involve creation of another risk, which may pose even greater threat to your business. For instance, the risk may be closely connected with production processes, which can only be eliminated by ceasing the very operations which is the major function of a business.
Though risk avoidance entails irredeemable problems, you and I practice it often, either as a loss prevention requirement or recommendation by insurers. Proponents of risk avoidance argue that it is economically better to treat problems created than tolerate the existence of a risk. Haven’t you heard before that ‘prevention is better than cure?’ Be that as it may, risk avoidance, inevitably involves changes in the way we conduct our businesses.
Take it or leave it, the surest method of avoiding risk is to cease certain activities of the business. If you feel that some of your business activities have greater risk than the returns they generate, it is only rational [at least to and for me], to close shop and try something else.
This reminds me of some golf practices. In a game of golf, the worst golfer is referred to as ‘most golf.’ Ironically, the majority of golf competitions do give out a prize to the position. Those of you, who play golf, will agree with me that the award is more of a mockery than a reward. I have come across a case where the most golf was awarded a rugby ball. My question is, what is the relationship between golf and rugby ball? The message is that the poor fellow is not a golf material, he better try playing rugby.
This is true in business, if the risk exposure is not suitable and bigger than the returns, it is better for you to quit and try something different.
If you do not want to quit, you may choose to change methods of production. Every production process has inherent risks. If these are too great for your business, despite having taken all practicable loss control measures, replacement the process by an alternative, where necessary, may be an option.
In certain cases, it is possible to eliminate selected risks by redesigning some internal procedures. The drawback is that you have to make sure that such attempts are being absolutely observed at all times.
Where natural risks are a problem to your business, the alternative is to physically relocate. Take a case of floods in Lower Shire districts of Chikwawa and Nsanje. If you have a business in the Lower Shire that is annually affected by floods, the best option is to move upland. However, just like any other change, another risk may come up. The movement is costly in terms of time, market availability and capital.
Views from the top are that risk avoidance is nothing than swapping one risk for another. What is construed as good risk avoidance for your business, today, may mean creation of a catastrophic risk, tomorrow. The cardinal rule is ‘play it safe.’ Go to the basics. It pays to involve an insurance broker, especially, when you are reviewing the modus operandi of your risk management. Talk to us. We are here to serve you.
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