So, what’s total cost of risk, what is it? Well, it’s the quantifiable expenses associated with the risk management function of any organization. What are the measurable costs? We’re not going to drill down too far. I’m going to give them to you in a subsequent post, but things like insurance premiums and retained losses are, undoubtedly, some things that come to mind. Indirect costs and claims, things of that nature are also contemplated. Essentially, the total cost of risk is a dollar sign that you can put in front of an amount of money that any organization is spending for their risk management unit.
Some organizations may have a risk manager, guess what? Their salary, that’s part of total cost of risk. They may bring in outside consultants, the money they pay, part of total cost of risk. You need to understand what this is and ask the right questions to get the dollars associated with the various components so that you can quantify that and deliver that in a message to your clients and prospects. So, that they fully understand their costs associated with the risk management function of their business.
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