What does 'risk management' in insurance entail?

'Risk management' in insurance primarily involves identifying, assessing, and prioritizing risks. This process is crucial as it allows insurers and brokers to systematically understand potential threats that could lead to losses or liabilities. By effectively identifying the risks, organizations can create strategies to manage and mitigate them, ensuring better decision-making and resource allocation.

The multifaceted approach of risk management aims to not only handle potential claims but also to proactively minimize the occurrence of such claims in the future. This strategic element involves evaluating the likelihood of risks, understanding their potential impact, and developing plans to address them before they cause significant financial consequences. Thus, this proactive management of risk is integral to the sustainability and financial health of insurance businesses.

The other options reflect a limited or skewed view of what risk management encompasses. Focusing solely on claims once they occur does not prevent losses but instead reacts to them after they happen. Dealing only with financial risks is also too narrow, as risk management covers various categories, including operational, strategic, compliance, and reputational risks. Minimizing expenses for the insurance company, while important, does not directly relate to the broader concept of eliminating or mitigating risks, which is the core aspect of risk management.