identify and manage risks in their respective areas of responsibility. This collective effort strengthens the overall risk management culture and contributes to the long-term success of the organization. 7.3.2 ERM & Captive Insurance Companies
(Source: Small Business Administration) Small and mid-market businesses often face vulnerabilities that their larger counterparts may not encounter. These vulnerabilities arise from several factors. Firstly, these businesses typically lack easy access to credit and capital markets, which can make it challenging for them to secure the necessary financial resources for growth and stability. Additionally, they are often geographically concentrated, meaning that their operations are limited to specific regions or areas. This concentration increases their susceptibility to local economic fluctuations, natural disasters, or other regional risks. These sizes of businesses commonly rely heavily on a few key revenue streams. This concentration of revenue can create a significant risk, as any disruption or decline in those revenue sources can have a severe impact on the company's financial health and ability to sustain operations. Consequently, it is not surprising that statistics show the fragile nature of these businesses. Approximately 40% of small businesses affected by natural or human-caused disasters never reopen their doors, reflecting the challenges they face in recovering from significant disruptions. Even for those that do manage to reopen, the road to survival remains arduous. Studies indicate that only half of the small businesses that reopen after a disaster can survive beyond the second year post-disaster. This highlights the immense difficulties these businesses encounter in rebuilding their operations, reestablishing customer bases, and recovering financially. To address these risks and enhance their resilience, small and mid-market businesses can explore enterprise risk management (ERM) strategies and captive insurance solutions. ERM involves identifying and assessing the full range of risks facing a company, implementing risk mitigation measures, and aligning risk management with the organization's overall goals and objectives. Captive insurance companies, on the other hand, are formed by businesses to provide insurance coverage for their risks, allowing them to retain and manage a portion of the risk rather than solely relying on traditional insurance providers.
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