The Use of Insurance as a Risk Management Tool

The goal of risk management is to identify, analyze, and manage loss exposure so that an organization can achieve its goals. The use of insurance is just one method that organizations use as part of their general risk management strategies. Using insurance, an organization or individual is able to transfer the financial consequences of a loss to an insurance company.


The purpose of commercial insurance is to protect against both property loss and liability loss exposures.


In a liability loss exposure, there is the possibility that an individual or organization could suffer a financial loss as the result of a claim seeking monetary damages or other legal remedy against them.


Property loss exposure refers to the possibility that a person or organization will suffer a financial loss due to the destruction, loss, or loss of use of property that the individual or organization has a financial interest in.

Commercial Insurance Versus Personal Insurance

Commercial insurance covers businesses (for profit) and nonprofit organizations, whereas individuals and families buy personal insurance to cover non-business insurance needs. Insurance for the property and liability of a restaurant falls under commercial insurance, while homeowner insurance covers the house and personal liability falls under personal insurance.


To liability and property insurers, the difference between commercial and personal insurance is essential. There are companies that offer only personal lines of insurance, some that offer only commercial lines, and some that offer both. There are separate divisions within an insurance company structure for personal and commercial lines. Commercial insurance generally involves a greater number of policy forms and endorsements than personal insurance.