Risk management, in its simplest definition, is the process of identifying uncertain events (or risks) and taking action to minimize the bad risk while maximizing the good. While risk management can be used in all sorts of applications, when it comes to businesses, this task mostly deals with finances. Risk management and insurance go hand in hand because of this.

After you identify potential risks, you have four basic actions you can take: avoidance, reduction, sharing, and retention. Avoidance includes decisions that completely remove the risk from your path. Reduction actions help minimize the impact of a risk of a particular event affecting your business. To share a risk, you transfer part of the loss or gain to another party. In risk retention, you bear the risk yourself, good or bad. Taking out an insurance policy is an example of sharing a risk while not taking out a policy is an example of risk retention.

Insurance rates are also assessed based on risk factors so if you are interested in lowering your commercial premiums, it can be helpful to talk to someone who understands the fields of risk management and insurance. It is important to keep in mind that all risks are not negative. Getting the most out of your business sometimes means taking risks so the chances are you assess risk and make decisions regularly.