Principles of Risk Management and Insurance, 13th Edition

Objectives of Risk management

Risk management has important objectives. These objectives can be classified as follows:¹

• Pre-loss objectives

• Post-loss objectives

Pre-Loss Objectives

Important objectives before a loss occurs include economy, reduction of anxiety, and meeting legal obligations.

The first objective means that the firm should prepare for potential losses in the most economical way. This preparation involves an analysis of the cost of safety programs, insurance premiums paid, and the costs associated with the different techniques for handling losses.

The second objective is the reduction of anxiety. Certain loss exposures can cause greater worry and fear for the risk manager and key executives. For example, the threat of a catastrophic ...