The identification of loss exposures is perhaps the most critical activity carried out by a risk manage- ment department because it is necessary to identify the complete spectrum of loss exposures facing an organization before developing a comprehensive strategy to handle such risks. This chapter has described many of the more common risks encoun- tered by organizations today, including such pure risks as property, liability, and human resource risks, as well as the indirect losses that each of these risks can cause. More recently, the growing popularity of ERM programs has expanded the
scope of today’s risk management departments to encompass operational, financial, and strategic risks as well. After an organization has identified its risks, it must next examine each loss exposure in greater detail to ascertain the statistical characteristics of their losses. This process is called risk assessment. Chapter 3 , “Risk Assessment and Pooling,” will describe how an organization can calculate several statistical measures for the types of loss exposures described in this chapter, thus proceeding through the third step in the risk management process.
Summary
1. Explain how risk identification has changed in recent years, as well as the reasons for the change.
2. Provide an example of an internal and external risk for a large automaker.
3. Consider the losses resulting from a large fire loss to a commercial building. Provide two examples of direct losses commonly associated with a fire, as well as two examples of indirect losses.
