Glossary

Risk control is the risk management technique of minimizing the frequency or severity of losses with training, safety, and security measures. It is a more modern term for what was once more frequently called "loss control."

A risk dashboard is a graphical presentation of the organization's key risk measures (often against their respective tolerance levels); typically used in reports to senior management.

Risk distribution, used in tax deductibility discussions, mandates that enough independent risks of unrelated parties be pooled to invoke the actuarial law of large numbers. In tax disputes, the Internal Revenue Service (IRS) and numerous courts have required the presence of both risk shifting and risk distribution to find a financial arrangement to be "insurance."

Risk financing refers to achievement of the least-cost coverage of an organization's loss exposures, while ensuring post-loss financial resource availability. The risk financing process consists of five steps: identifying and analyzing exposures, analyzing alternative risk financing techniques, selecting the best risk financing technique(s), implementing the selected technique(s), and monitoring the selected technique(s). Risk financing programs can involve insurance rating plans, such as retrospective rating, self-insurance programs, or captive insurers.

A risk gap is the difference between the net premium plus capital and surplus and net retained insurance or reinsurance limits.

Risk identification is the first step in the risk management process and involves the qualitative determination of risks that are material—that is, that potentially can impact the organization's achievement of its financial and/or strategic objectives. This is often done through structured interviews of key personnel by internal or external experts, reviews of contracts, inspection of facilities and other property, study of the organization's business process maps, and other such activities.

Risk index measures the average losses for a homogeneous group of risks, used for risk pricing purposes.

Risk management is the practice of identifying and analyzing loss exposures and taking steps to minimize the financial impact of the risks they impose. Traditional risk management, sometimes called "insurance risk management," has focused on "pure risks" (i.e., possible loss by fortuitous or accidental means) but not business risks (i.e., those that may present the possibility of loss or gain). Financial institutions also employ a different type of risk management, which focuses on the effects of financial risks on the organization. For example, interest rate risk is a bank's most important financial risk, and various hedging tools and techniques such as derivatives are used to manage banks' exposure to interest rate volatility.

A risk management information system (RMIS) is a very flexible computerized management information system that allows the manipulation of claims, loss control, and other types of data to assist in risk management decision-making.

The risk management process is the process of making and implementing decisions that will minimize the adverse effects of accidental business losses on an organization. Making these decisions involves a sequence of five steps: identifying and analyzing exposures to loss, examining feasible alternative risk management techniques to handle exposures, selecting the most appropriate risk management techniques to handle exposures, implementing the chosen techniques, and monitoring the results. Implementing these decisions requires performing the four functions of the management process: planning, organizing, leading, and controlling resources.