To Your Wealth: Strategies for managing risk
As part of your financial life plan, understanding, assessing, and minimizing risk factors is an important element. At FSG, we recognize the consequence of not properly managing risk and the serious implications that can have on your overall financial and life well-being. 
It’s important to understand what risk management means in the context of your financial life plan. Many people assume it refers exclusively to insurance. While insurance is certainly important, it is not the sole factor for consideration. There are three strategies we explore when assessing clients’ risk factors and helping you reduce the financial impact should one or more of them materialize into an actual situation. Those include reducing risk, assuming risk, and transferring risk. Let’s explore these together.
Managing risk strategy #1: Reducing risk
When we talk about reducing risk, we’re looking at common tactics you can take that will help reduce the potential of the risk or the costs associated with insuring against that risk. For example, installing smoke detectors in your home provides for early detection of smoke or fire, and can reduce the potential for a catastrophic loss. RING doorbells and cameras not only provide homeowners with convenience and a deeper sense of safety, but they can also prove beneficial for authorities should something happen in or near your property. We suggest our senior clients take some simple measures in their environments to reduce the risk of falls. For example, removing tripping hazards like loose rugs or making things easier to reach to avoid having to use a stool could help you avoid an accidental fall.
We encourage our clients looking to purchase a new car, to look at vehicles that have added safety features. Newer vehicles offer front and rear sensors and cameras, which make it easier to be aware of obstacles behind or in front of you. Driver assist features, like lane control and blind spot notices increase driver attention and gives you an added element of safety on the roads. These types of risk-reducing measures can result in small discounts in your auto and homeowner insurance policies.
The beauty of these risk-reducing measures is that they are often inexpensive, easy to apply, and readily available. Sometimes, the most obvious remedies can have a significant impact on your life and financial well-being. Now let’s look at what we mean by assuming the risk.
Managing risk strategy #2: Assuming risk
When you opt to assume the risk, it simply means you are agreeing to be financially responsible for the cost of that risk or effectively self-insuring against loss. Therefore, if you experience a catastrophic fire in your residence, for example, you will bear the cost of replacing your structure and personal property without the benefit or financial relief of insurance. Naturally, you are saving the annual premium costs, but you are assuming a potential high dollar cost should something catastrophic go wrong. It’s important to note that if you have a mortgage on your home, you must have insurance. It is required as a term of your mortgage and often included in your escrow, although some mortgage companies permit you to direct pay and provide proof of insurance annually.
Managing risk strategy #3: Transferring risk
When you transfer risk on the other hand, you are exchanging the cost of premiums and applicable deductibles for the benefit of having an insurance company assume the risk to certain limits on your behalf. Understanding what your insurance does and does not cover is important in managing your financial risk and exposure.
As your financial advisors, we include looking at your insurance coverage as part of your financial life plan. We recommend you have your insurance reviewed by your agent(s) at minimum every three years and/or anytime you have significant change. For example, immediately notify your agent if you’ve bought or sold a vehicle or have done a significant remodel to your home. They will adjust your coverage limits to ensure you are maintaining appropriate levels of protection.
Making sure you maintain appropriate insurance coverage is an important step in managing risk.
Why insurance is getting more costly
You may be reading more about the steadily rising costs of insurance. Americans across the board are seeing (and feeling) the impact of inflation in many areas of our economy and insurance costs are no exception. Rising cost of repairs as well as labor and materials shortages have impacted premium prices. A slew of natural disasters from fires to floods have also contributed to significant price increases for home and auto coverages. In fact, some insurers are no longer writing new policies for homeowners in certain areas of the country that are prone to catastrophic natural events.
Trying to do your due diligence when shopping for insurance can be a daunting task. You may want to consider using the services of an insurance broker to help you do the legwork involved with sourcing and gathering quotes from various insurance providers. Insurance brokers collect the essential details from you and then using their pool of companies, source the best options to present to you. They are paid a commission by the insurance companies so there is no additional cost to you for their services. If you’d like to learn more about working with an insurance broker, this blog from Buy Side might provide useful information. https://www.wsj.com/buyside/personal-finance/what-is-an-insurance-broker-62c7ac2c
Risk management, as we apply it in helping you live your great life, involves assessing ways to reduce risk, when/if to assume certain risks, and how to transfer risks. As part of your service from your advisory team at FSG, we conduct a review of your insurance with you every four years. We’re here to support you in your financial well-being and are available at any time to help answer questions or concerns about your personal risk management.
