Enterprise Risk Management (ERM) is a historical approach to identifying, defining, quantifying and treating all kinds of risk facing an organization; weather insurable or not. Unlike traditional risk management.
Enterprise Risk Management deals with all types of risk, such as harzard or event risk, operational risk, credit risk, and Financial risk.
- Operational Risk – this risk of loss from everything other than credit, market, and interest rate risk. It is the risk of human, process, system, or technological failure as well as risks from external events (i.e event risk).
- Pure Risk – the risk involved in situations that present the opportunity for loss but no opportunity for gain. Pure risk are generally insurable, where as speculative risks (which also present the opportunity for gain) generally are not.
- Speculative Risk – Uncertainty about an event under consideration that could produce either a profit or a loss, such as a business venture or a gambling transaction. A pure risk is generally insurable while speculative risk is usually not.
- Event Risk – Risk of loss associated with fortuitous occurrences (e.g fires, hurricanes, tortuous conduct). Event Risk , which is synonymous with pure risk, harzard risk, or insurance risk present no chain of gain, only of loss. The perils covered by traditional property casualty (P&C) insurance products are within the realm of event risk.
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