CRM Risk key terms

The possibility that future outcomes will differ from what is expected, usually expressed as a combination of how likely an event is and how serious its consequences would be.

A situation where the only possible outcomes are loss or no loss, with no chance of gain; fire, lawsuits and workplace injuries are typical examples.

A situation that offers a chance of gain as well as a chance of loss, such as entering a new market, launching a product or investing in securities.

The actual cause of a loss, such as fire, flood, theft or an earthquake; insurance policies list the perils they cover and exclude.

A condition or circumstance that increases the likelihood or size of a loss from a peril, such as oily rags in a warehouse or a weak safety culture.

Any person, property, activity or financial interest that could be harmed by a loss event, together with the amount of value at stake.

A company-wide approach that identifies, assesses and manages all significant risks together, including operational, financial, strategic and hazard risks, rather than treating each in isolation.

The amount and type of risk an organization is willing to accept in pursuit of its objectives, usually stated formally and approved by the board.

The number of losses of a given type that occur within a defined period, often expressed as a probability or a rate per unit of exposure.

The amount of damage or cost produced by a single loss event, which together with how often losses occur determines the total cost of a risk.

The average amount a risk is expected to cost over a period, found by multiplying how often losses occur by their average size.

A mathematical description of all possible outcomes of a variable and how likely each one is, used to model the range of losses a risk can produce.

A measure of how widely outcomes spread around their average; a larger figure means losses are less predictable and the risk is more volatile.

The largest loss expected over a stated period at a given confidence level, for example the loss a portfolio could suffer one year in a hundred.

A computer technique that repeatedly samples from probability distributions to generate thousands of possible outcomes, producing a range of potential losses and their likelihoods.

A grid that plots risks by likelihood and impact, often colour-coded, to rank them and show which ones need attention first.

Measures taken to stop a loss from happening at all, such as installing sprinklers, securing premises or training employees in safe work procedures.

Measures that lessen the severity of a loss once it has begun, such as alarms that speed evacuation, emergency response teams or automatic shut-off valves.

Deciding not to undertake an activity that carries unacceptable risk, which removes the exposure entirely but also gives up any benefit the activity offered.

Spreading a single exposure across several locations, units or time periods so that one event cannot destroy everything at once.

Documented procedures that let an organization keep critical operations running, or restore them quickly, after a serious disruption such as fire, flood or systems failure.

The process of recognizing, responding to and communicating about a sudden, high-impact event that threatens an organization's reputation, operations or survival.

The process of reporting, documenting, adjusting and settling insurance claims so the insured recovers what is owed promptly and the insurer controls claim cost.

The legal right of an insurer, after paying a claim, to step into the insured's shoes and pursue the party that caused the loss to recover the amount paid.

Keeping the financial consequences of a risk inside the organization instead of passing them to an insurer, either deliberately or because the loss is too small to insure.

A formal, funded retention program in which an organization sets aside money to pay its own expected losses instead of buying conventional insurance cover.

A licensed insurance company owned by a non-insurance parent, formed to insure the risks of that parent and its affiliates and to retain the underwriting results.

The amount an insured must pay toward a loss before the insurer responds, which reduces the premium and leaves small, frequent losses with the insured.

Insurance bought by an insurer to cover part of the losses it has assumed, protecting it against a single very large claim or a surge of claims.

A security that pays investors above-market interest but forgives principal or interest if a defined disaster occurs, moving catastrophe risk into the capital markets.

Non-traditional ways of financing risk, such as captives, risk pools, derivatives and capital-market products, that supplement or replace conventional insurance.

A sharing arrangement in which the insured and insurer each bear a set percentage of every loss, or a penalty applies if the insured carries less coverage than required.

The person accountable for managing a particular risk, including monitoring it, selecting controls and reporting its status to senior management.

A senior executive responsible for the overall risk management program, advising the board and coordinating risk activities across business units and functions.

The shared values, attitudes and behaviours in an organization that determine how risks are identified, discussed and acted on in daily decisions.

A metric that gives early warning that a risk is increasing, such as rising injury rates, growing complaint volumes or lengthening system downtime.

An international standard that sets out principles, a framework and a process for managing risk, which organizations in any sector can adapt to their needs.

The chance that economic, political or social conditions in a foreign country will harm an organization's operations, assets or payments there.