This guide covers the evolution and application of the concept of inherent risk, originally rooted in insurance practices. In the past, underwriters used Maximum Possible Loss (MPL) to assess potential catastrophic losses, focusing on worst-case scenarios. However, this approach was highly theoretical and often unrealistic. Over time, insurers transitioned to Estimated Maximum Loss (EML), which… Continue reading Guide to inherent and residual risk
Tag: Inherent risk
Never compare inherent to residual risk again
The concept of inherent risk originated in insurance where underwriters used Maximum Possible Loss (MPL) to determine the total value that could be lost in a catastrophic event. MPL considers the absolute worst-case scenario, with no controls in place, even if it’s highly unlikely to occur. The concept of considering the worst-case scenario loss has… Continue reading Never compare inherent to residual risk again
The better alternative to “inherent” and “residual” risk concepts
Few things are certain in life: death, taxes and someone in the risk community asking about inherent and residual risks. In fact the question is so frequent that I even did a short video response: To most organisations inherent vs residual comparison is a way to measure potential risk mitigation effectiveness and the reduction in… Continue reading The better alternative to “inherent” and “residual” risk concepts
