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It isn’t all about buying insurance

While adequate insurance is necessary, making insurance the lead dog in the risk-avoidance pack is not the best method of combating risk.

According to a recent white paper published by Hub International, commercial insurance should be the court of last resort in any holistic risk management plan. It’s just a way to pay for bad things that happen.

A textbook approach to risk management involves a systematic, sequential process:

  • Identification and assessment: What hazard, operational, financial and strategic threats confront the organization? How frequent and how severe are they? What would the consequences be in a worst-case scenario?
  • Avoidance and reduction: What measures can the entity managers take, through property conservation, life safety, human resource, and travel safety/security policies, to avoid and reduce risks? As managers consider new programming, operations and partnerships, what can they do to eliminate or lessen inherent risks?
  • Transfer: Does the organization acquire or divest risk when it enters into contracts, and to what extent? As a purchaser of goods or services, does the nonprofit routinely ask the sellers to provide defense and indemnity, and require appropriate insurance as a financial backstop? Does its own insurance properly accommodate the risk that it assumes?
  • Retention: To what extent can the organization safely assume risk from its own treasury to achieve more efficient commercial risk transfer and avoid “trading dollars” with its insurers?

As we celebrate our 36th year, NPT remains dedicated to supplying breaking news, in-depth reporting, and special issue coverage to help nonprofit executives run their organizations more effectively.