In mountaineering circles there’s a concept known as exposure which is critical to managing risk. Exposure relates to where a climber is at any point on their journey relative to a steep or sharp drop-off. It’s not about absolute elevation but about proximity to a precarious position. Where a climber is somewhere a misstep may result in a fall over a cliff onto a pile of rocks thirty feet below offers a much higher level of exposure than a climber standing at the top of a flat, stable mountain peak that is fifteen thousand feet above sea level. In the former circumstance, a trip could be catastrophic whereas in the latter, though much higher, each step carries with it little risk.
Where a continued climb has consequences, we’re exposed. Exposure increases where terrain is technical and tricky. Exposure increases where the surrounding hazards offer a danger to the climber. Exposure can also be influenced by the influence of mother nature and weather. It’s less about the degree of difficulty and more about the degree of danger. Does the challenge come with a chance of calamity? If so, exposure is present. Exposure is, in essence, the measure of risk that a climber is facing.
Consider a twenty-foot length of lumber that’s two inches thick by ten inches wide. If it’s placed on the ground and you stand on it, there’s enough width for you to stand with your feet side by side. If you were asked to walk from one end to the other, you could do this without batting an eye. If the plank was then placed between two chairs, you could likely still do the ask of walking the length without too much of an issue. Even if you took a misstep and stumbled off the board, it wouldn’t be catastrophic. If we placed the board a little higher, between two ten-foot ladders, for example, things would get a bit trickier. This wouldn’t be life threatening, but you would be facing real risk of a physical consequence if you failed to stay balanced on your walk across the plank. Raising the stakes one more level we could place the board between the deck railings of two adjoining townhouses that may be thirty feet off the ground. Now the consequences of a mistake are like the board itself, much higher. The same task when done in an environment where the consequence of a mistake rises expresses the level of increased exposure experienced.
Greater exposure implies greater caution. Climbers are encouraged to anticipate the exposure they will experience on a climb, prepare themselves to manage it, and to heighten their awareness and attention to detail when they find themselves in circumstances involving higher levels of exposure. Climbers that know they will be traversing rock walls prepare by bringing climbing ropes and equipment to secure themselves to the rock wall such that any fall will limit the damage to themselves and others. Climbers plan their routes as well as the time of year that they will take on an adventure to minimize their exposure to the whims of mother nature. Moreover, they pack properly ensuring they have gear that will protect them should the weather change.
Exposure isn’t just a mountaineering concept, it’s a core concept of risk management in general. The field of insurance is about helping individuals and businesses manage the risk that they face. To be able to help protect people, an understanding of what risks they face or may potentially face must be done first. Risk management begins with a risk assessment.
From an awareness of the risks present, a further assessment of the likelihood as well as the consequence of each risk is undertaken. This becomes the measure of exposure.
From here, risk management works to determine the risk tolerance of an individual or business. What risk level is one comfortable with? Is there agreement amongst the probability of a problem occurring and the consequence of it? Do we agree that we want to avoid certain circumstances or are we ok accepting things?
From this analysis risks are categorized into ones that are acceptable, ones to try to reduce, and others to avoid all together. Do you have a process for working through risk management with clients? Whether you’re working with individuals or business owners, is the process similar?
Frameworks for risk management provide a structure for identifying and managing potential problems. These frameworks typically share core components. The start is identifying risks. What hazards are lurking in the weeds? From identifying, an assessment of the magnitude of the risk coupled with its probability are considered. How consequential is the impact of the risk and how likely is it to occur? From here, risk management dives into determining which of the identified risks should be avoided, managed, or insured. A fourth phase of risk management involves regular monitoring and review of risks. Are the risks identified occurring? Are we managing them properly? Are there other risks arriving which weren’t previously identified?
As an insurance broker, helping your clients manage risks they’re facing is a core value you’re able to add. Many small businesses and individuals simply aren’t aware of the risks to which they may be exposed. Any assistance you can offer in terms of helping them develop a risk management framework to control the exposure of risk to levels that are manageable is sure to be appreciated.
