Risk Management: How Community Associations Protect Themselves 

Introduction

Risk management is the process of making and carrying out decisions that minimize the adverse effects of accidental losses. It involves five steps:

1. Identifying exposures to loss
2. Examining alternative techniques
3. Selecting the best techniques
4. Implementing the chosen techniques
5. Monitoring and improving the risk management program

This guide will examine each phase of the risk management process. It also will help board members and managers identify risks and implement a plan that will safeguard association assets.

Management involves four key activities: planning, organizing, leading, and controlling.

• Risk management is a five-step decision-making process that is implemented through those four activities. In this sense, risk management is like any other type of management.

• The risk management process begins when the association identifies exposures to loss in four areas: property, liability, net income, and personnel. At this point, the association selects, implements, and monitors a risk-financing plan. The purchase of commercial insurance, although very important, is only one part of that process.

• Associations must delegate risk-management tasks to appropriate staff and volunteers to protect their assets from accidental loss. Few associations are large enough to have full-time risk managers.

• Claims usually involve the transfer of financial risk to a commercial insurer. However, too much emphasis on insurance minimizes the role of risk control in claims management.

• Associations must carefully manage claims to ensure they fully benefit from their insurance program.

• A risk management program should always be integrated with a comprehensive insurance program.