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Risk management is best understood through its history. The period from World War II to the mid-1960s was a formative one, characterized by burgeoning enterprise and creativity on the part of businesspeople, inventors and lawyers. New risks appeared, old ones were aggravated and, impelled by risk managers' responses to them, the risk management function evolved apace and gained its title and a core definition.
When insurance was used by corporation management only for financing certain losses, the contract was bought and administered by a member of the finance staff known as the insurance buyer. As loss exposures increased, the insurance buyers developed their skill at patterning and administering the contract. This required more cooperation from other departments. As a result, insurance buyers began to use the more descriptive and upscale title "insurance manager" in order to get the cooperation they needed.
As enterprise continued to expand and diversify, insurance managers expanded their duties by examining company operations for serious uninsured risks and loss prevention opportunities, suggesting changes in operations in order to avoid risks, recommending hold-harmless clauses in certain contracts, getting deductibles and declining to insure some bearable risks.
In 1955 Wayne Snider, professor of insurance at Temple University, suggested that since insurance managers were now focusing on risks and ways to control them, rather than merely purchasing insurance, they should be called risk managers. And in 1956 practitioner Russell Gallagher, writing in the Harvard Business Review (Vol. 4), introduced the term risk management to business organizers. Some purists suggested that the term risk manager properly belonged to chief executive officers (CEOs), but no CEO showed interest. However, the term was so impressive that various outsiders claimed that, as stock brokers, investment counsel, physicians, boards of health or lawyers, they too were risk managers. So the terms became buzz words, which obfuscated their meaning but attested their elegance--to the benefit of risk managers and their mission.
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In the 1961 edition of the book Insurance, Its Theory and Practice in the United States, author Ralph Blanchard, retired professor of insurance at Columbia University, proposed that the field of risk management is that of "pure risks," meaning risks offering the possibility of loss or no loss, as contrasted with "speculative risks," which offer the...