Identifying and Analyzing Loss Exposure

For identifying and analyzing loss exposures there are two steps, first is to identify three dimensions of loss exposures and the second is to use widely used method for analyzing and identifying loss exposures.

Any loss exposure has three dimensions, the first dimension is value subject to loss, the second dimension is the perils which are causing loss and third dimension is the financial consequences of those losses. The values exposed to loss has a large range which includes loss from property, net income, health and the life of personnel of the organization, and losses which could arise from litigation. There are several perils which can give rise to the loss exposure which includes windstorm, earth quake, flood, stealing property, technological changes and unemployment etc.

The financial consequences of the loss can vary from organization to organization and from incident to incident. Severity and frequency of an incident, the actual harm caused by the incident and the financial strength of the company are the factors which will determine the financial consequences of a single event. Low severity losses are usually more frequent then the high severity losses. Many stake holders can be affected by a single risk event, these stake holders can be employees, suppliers, shareholders, customers etc. Risk manager should keep in mind all these dimensions, and should keep in mind that change in any dimension will alter the loss exposure and therefore the risk manager will have to alter his strategies and techniques.

There are some basic methods which have been developed for identifying loss exposures. It depends on the circumstances and scenarios that which method to choose. These methods includes surveys, questionnaires, loss histories, financial statements and other underlying records, flowcharts, Hazards and probability study, personal inspection and expertise within and beyond the organization.

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