
The A.R.T of Risk Management

Risk comes in many different forms. Be it slipping on a wet surface or having the risk of contracting an unknown disease. In order to better classify and assess our risks, we use the A.R.T of Risk Management. A.R.T stands for Avoid, Retain, and Transfer, the 3 ways we can properly address the different types of risk.
Avoiding Risk
The surest way to prevent any loss or risk is to assess whether a particular action has any potential to put us in a disadvantageous situation with very little upside. Examples of such risks include investing your life savings into unstable shares which could go south at any time. However, this is a risk that can be avoided because it is within your control and it is your decision whether or not you are willing to invest in the shares. Additionally, risks such as illnesses or natural disasters cannot be completely avoided.
Retaining Risk
Health associated risks such as diabetes and high cholesterol can be managed by eating comfort food in moderation and exercising more often, which lowers our risk of getting diagnosed. Another example would include managing the risk of being retrenched – by having an emergency fund which is equivalent to 6 to 8 months of your average monthly expenses.
Transferring Risk
Falling critically ill or getting into an accident are risks that cannot be controlled nor retained and they usually result in dire financial consequences. For example, the estimated cost of cancer treatment in Singapore can potentially exceed S$100k – S$200k depending on how severe the condition is. Additionally, the medical inflation rate in Singapore from 2017 to 2018 is very high at 10.1%, which sets to increase the already high costs of healthcare in Singapore to increase much more in the future!
Many of us grew up knowing that health related risks are the most expensive, but not many people can put an exact number to it and better plan for these circumstances.
Health related risks are also the most expensive but there is a way to transfer these risks to third party companies such as insurance companies. Insurance companies are there to help cover financially devastating situations.
Now that you know the A.R.T of Risk Management, do ensure that you are properly covered to prevent any undesirable situations from happening. Stay safe and most importantly, stay protected!
– Kenny Ng (@kennyngmh), Financial Services Consultant