Risk mitigation is recommended for all organizations including insurance companies. The sources of risks for a business organization are unlimited from external risk factors to internal risk factors. Insurance companies are used to mitigating other people’s risks and forget to mitigate their own. Technology has brought about new risks dealing with information security. Insurance companies have confidential details from clients who trust the company to keep that information confidential. It is, therefore, the responsibility of the insurance company to ensure that communications and information storage is secure. The responsibility ranges from protecting the customer’s personal information to keeping company secrets and financial information confidential.
What is risk mitigation?
Risk mitigation is the process of taking necessary steps to identify the risks that a company faces and putting controls to deal with the imminent risk. Risk mitigation is important in ensuring business continuity and profitability. When business when potential risks are realized they definitely cause loss to the company. Risk mitigation strategies are made and implemented depending on the effect of the risk to the company.
Risk mitigation strategies
There are four strategies that are used in risk mitigation. They are used depending on the impact of the risk and the cost of implementing the strategy.
This strategy involves doing all that is possible to avoid the effects of the risk. This is an expensive risk mitigation strategy. It may involve buying expensive equipment or paying a high-end consultancy firm to prevent the risk from being realized. For example, pharmaceutical companies spend millions on state of the art security systems to ensure unauthorized people cannot access their research.
This means that the company is ready to accept the losses incurred. You can implement this strategy when the cost of avoidance is higher that the loss that the company will incur from the risk. In addition, the risks that a company is willing to accept usually have a small probability of actualizing.
This involves reducing the risk the company faces. It is a mix of avoiding and accepting the risk partially. This strategy is used in small risks like having an outdated machine. The machine may be slow and cause customers to complain about the line. However, it is better to have a slow machine than to have none.
This strategy is beneficial to a company if it lacks the competence to handle certain activities. Your company transfers the risk to a third party to handle. This is very easy to do with the growing popularity of outsourcing services like customer service and tax computation services.
Steps for mitigating risks
- Company Objectives
The senior management and board of directors should set the company objectives, mission, vision and what you intend to achieve. These objectives will define the operating parameters of your company. They will also define the risks that your company will be facing both internally and externally.
For example, a technology that aims to be the best in app development should expect the risk of being hacked by competitors and black-market suppliers. The company should also identify the risk of an employee selling the specifications of your product to external parties. This knowledge can be used in making controls and mitigation strategies.
This is a thorough evaluation of all the aspect of a business. Some of the key aspects include business processes, debtors, creditors, employees, competitors, environmental changes, political climate and risks caused by emerging issues. The weaknesses in your company should be identified and listed in the order from the risks that can cause the largest loss.
Risk assessment should factor in risks from information security. In recent years, policies and frames works have been developed to ensure that customer information stays confidential. New income strategies like online sales come with a responsibility to your company to protect customer information. This process requires encryptions, secure storage and secure online payment systems. Your company is liable for any leaked information about your clients.
3.Assess Risk Tolerance
Your company should decide the risks that it can accept and those risks to avoid. The risk that your company can accept without incurring big losses is your company’s level of tolerance. The IT systems may have higher risk tolerance than other areas.
For example, hackers may try to breach your firewall from time to time successfully but they are identified and locked out of the system immediately. This should not be a cause to add an extra firewall. This is a risk your company can accept because it doesn’t cause serious damages. The client information is still secure.
4.Internal and External Risk Controls
Internal controls and external controls should be set in accordance to the company objectives and the set risk tolerance. The controls should be set as per every risk that is identified during the risk assessment process. Some of the internal controls include training employees on the risk exposure and how to avoid risk. You should streamline the authorizations in your organization like introduce a maker system.
5.Reviews and KPIs
Reviews are important to check whether the mitigation strategies in place are working. Your company generates reports periodically to confirm that the controls are working as expected. You should set key performance indicators to use as the standard measurement against the actual performance of the company.
Risk mitigation strategies should be broken down by a unit manager to suit each employee. You should make risk strategies for each and every department in your organization to march their risk exposure. Spend money on training so that all your employees so that they are fully aware of the company’s risk exposure as they go about their daily activities. Frameworks like Committee of Sponsoring Organizations of the Treadway Commission Cybersecurity Framework, COSO CSF and National Institute of Standards and Technology’s Risk Management Framework, NIST RMF are recommendable guidelines for risk mitigation in internal controls and addressing security practices.
Ken Lynch is an enterprise software startup veteran, who has always been fascinated about what drives workers to work and how to make work more engaging. Ken founded Reciprocity to pursue just that. He has propelled Reciprocity’s success with this mission-based goal of engaging employees with the governance, risk, and compliance goals of their company in order to create more socially minded corporate citizens. Ken earned his BS in Computer Science and Electrical Engineering from MIT. See more at ReciprocityLabs.com.