Insurances for Human Capital Risk Management - Article Example

Name: Course: Tutor: Institution: Date: Risk and Insurance Summary The article Insurances for human capital risk management in SMEs’ offers a focus on the element of human capital risks and how insurance systems and policies can be used as a measure to counter and mitigate the challenges. In order to provide a critical analysis of the process, the article uses the case study of SMEs workforce and uses the information and data available from insurance companies to formulate its analysis. In this case, the study analysis is developed through the adoption of an insurance provider viewpoint, where analysis and application of the recommended services is argued from (Maenpaa and Voutilainen 57). Finally, the article prides its findings originality in the evaluation of knowledge risks. In this case, the authors assert that this is a human risks area that has not been evaluated in the pat and thus requires much focus and evaluation. As such the study findings play a critical role in providing literature to bridge the existing gap in the market. Main Learning Points The article analysis developed a series of key findings both in the literature review analysis and in the findings section respectively. First, the study established that human risks in the workforce can be classified into two main categories, the insurable and the non-insurable risks. On one hand, it argues that the insurable risks are the category of risks that the insurance providers are willing to insure companies against. As such this was determined as the set of risks that there are readily existing insurance covers for the companies. In essence, it argued that the insurable risks are the category of risks that the employer organisation lacks direct control over. Dome of such risks included employee turnover, both voluntary and involuntary, lose of competence, and offense committed by employees towards the company among others On the other hand, the analysis argued that the uninsurable risks are the set of human capital risks that the insurance companies are unwilling to insure companies against over. As such, this represents as set of human risks that there is not readily available cover for. In their analysis, the authors noted that the uninsurable risks are the set of risks that the respective organisations have control over. In this regard, the employers can influence and have internal systems that can control and protect against the occurrence or the sped of such risks through a series of both proactive and reactive measures. Among the key human risks factors classified as uninsurable included inadequate training of the employees, unsuccessful recruitment, and employee discrimination among others (Maenpaa and Voutilainen 61). In its final discussion and conclusion analysis section, the article recommended that organisations should consider the use of pension, health, accident, liabilities, and crime insurance services as part of insulating their operations against potential risks occurrences. Moreover, firms should identify internal systems that should be applied and developed proactively to mitigate and deal with the uninsurable human capital risks. Critical Analysis A critical analysis of the developed study argument indicates a series of strength areas as well as areas of weakness in the article. This section offers an analysis of the strength areas of the article and possible weakness areas where exiting and other literature studies seem to have contrasting views and perspectives form those offered by the article authors. Article Strengths A key article strength noticed is the use of SMEs organisational workforce as the basis for the human capital risks. In this case, the selection of SMES over the large and multinational organisations is well informed. In this regard, the large and multinational corporations often have risk management functions with specialised workforce and functional capital directed at evaluating and managing risks potential occurrence. In this regard, the evaluated risks span from the operational financial and human capital risks. Therefore, the organisations often have established and operational risk management systems. However, this is a different scenario for the SMEs in the global market. One of the fundamental characteristics of the SMEs operations is their lean management systems. In this case, most SME organizations have minimal functional units due to the limited nature and availability of capital to support operations. In this regard, the SMEs lack proper and well structured risk management systems, especially for their human workforce. Thus, this is the category that is faced with the highest human capital risks than all the others in the global market. This assertion can be verified through a study developed by (Cardon and Stevens 297). In the review, the authors sought to establish the level of risk occurrences in business ventures. It classified business ventures based on their size including the small, SMES, and large corporations respectively. In its analysis, the study established that the small and medium sized business ventures fell under a higher occurrence of human capital risks that the large corporations. This was mainly due to the lack of proper and sufficient internal remedy systems. Therefore, this review argues that the focus and valuation of the human capital risks in the context of the SMEs gave the analysis a wider scope and increased rationale in the market. This is not only based on the argument that it is the SMEs that are faced with such risks more often, but also the fact that the SMEs are the majority of the organisations in the global market. This means that the generalisation and the rationale of the study spans over a huge and large market base. The second key observation in which the authors were right and have been supported by numerous reviews is in the concept of classifying human risks into insurable and the uninsurable risks respectively. In this regard, the study arguments are in line with a series of findings and previous theoretical arguments. On their part, Biener, Eling and Wirfs (137) clarified that not all risks could be insured. In this regard, they asserted that in order for a risk to qualify as insurable, it should meet a number of conditions. One among the key listed factors is that they should not be within the control of the insured persons. As such, the nature, frequency and magnitude of the insured risk should not in any way be under the control and influence of the insurer. As such, in the case of the SMEs, it implies that a human capital risk can only be insured if it is not under the control of the employing organisation. Thus, the article authors were in order to develop a strategic framework through which to analyse and evaluate the existing human capital risks against this threshold. To this effect, this review note that all the risks identified as uninsurable meet the threshold required to be categorised as such. For instance, the element of inadequate training of employees and employee discrimination are within the organisational control and mandate. On one hand, in the element of training employees, it is the existing organisational training programs, number of trainers and the overall funds allocated to the training program that determine the level of employee training. On the other hand, in terms of employee discrimination, the organisation has a direct control over this risk. This can be illustrated through a study developed by Cortina et al (1581). In its aim, the study aimed at evaluating the causes of employee discrimination challenges in cross-cultural workforce organisations. In this regard, the study aimed at evaluating the key reasons why there were differences between employee discrimination levels in organisations serving in the same industry, market, and with almost the same employee diversity nature. In its analysis, the study established that the type of applied organisational policies on employees management. As such, it revealed that organisations with better diversity management policies had minimal employee discrimination challenges respectively. Therefore, this serves as an illustration that he concept of employee discrimination and management falls under the insuring organisations management systems. Finally, the organisations have a control over their recruitment systems. In this context, the organisations have a decision to develop their own recruitment internal systems or use the external market recruitment systems respectively. In such a situation, it is the decision of the ventures on their preferred recruitment systems that can make them either successful or unsuccessful respectively. Thus, based on the above analysis, the study argue that the applied classification on the human capital risks, either as insurable or uninsurable was correct and in agreement with a variety and a wide variety of existing risk management and insurance literature. This analysis agrees on the concept of advocating that the SMEs should develop their own internal and operational systems in the market. In this case, the article notes that the SMEs should develop alternative measures to not only control the uninsurable risks, but also the insurable once. This argument is in congruence with a majority of the risk management articles. For instance, Gao, Sung and Zhang (679) in a study evaluating the role of organsiational management in managing risks, noted that the management could proactively avoid, and reduce the magnitude of many risks in the market. In this regard, the study recommended that in order to develop a proper risk management system, organisations should develop relevant risk assessment, evaluation, analysis and control systems respectively. In this regard, it noted that the formulation of such a system ensures that the potential for risks occurrence and emergence is identified and evaluated well in advance. This has a series of benefits to the managing organisations. First, it supports the elimination of the uninsurable risks that often result to losses upon occurrence. Secondly, the reduction of the probability and the risk of occurrence for the insurable risks reduce the overall paid premiums. It is imperative to note that for any insurance policy cover, the insuring organisation pays a substantial premium cover to the insurer. In this case, the value of the insurance premium is based on the probability of a risk occurring and the expected level and magnitude of such a risk occurring respectively. Therefore, if the article recommendations are implemented, it means that the SMEs will reduce theory overall risks management costs in the market. Article Weakness Although the article has series of strengths as enumerated above, it has its share of weaknesses. One, the article does not provide a critical evaluation and framework through which the risk challenges can be mitigated by SMEs. In this case, the article offers a general recommendation that the SMEs should develop proactive measure through which to counter and overcome the existing uninsurable challenges. Therefore, as MacLeod (71) argued, in order to allow for administrative actions in organisations, it is imperative that empirical studies develop actionable recommendations. In this case, the recommendations should meet the SMART goals objective. This means that the goals and recommendations should be specific, measureable, actionable, and realistic and time bound. A critical examination of the offered recommendations reveals that the offered recommendations were specific in that they target the SMEs in the market. However, they are not measurable or even time bound. On one hand, they are not measurable as no actionable success criterion is offered on how to manage risks and uninsurable risks. Further, the research study does not provide a time bound measure through which specific actionable actions should be completed or reviewed. Therefore, this critical analysis argues that the study although with insightful and theoretically sound findings, fails to offer relevant actionable SMART recommendations for the SMEs in the global market. The second limitation in the study is its applied research methodology. In any research study, the applied methodology plays a critical role in influencing the type, nature, and the quality of data obtained in a study. In turn, the obtained data influences the quality of the study findings and recommendations respectively. In the case of the article analysis, it used the case study approach. As such, it used the view point of an insurance company view point on the human capital risks affecting SMEs. This creates the major study challenge. First, the Insurer is focused on the insurance risks that generate revenues. It is imperative to understand that the evaluated insurance company is a profit generating entity. Therefore, the opinions and perception of the entity is bound on the risks that can be insured and earn the entity a profit margin. As such, this means that the identified issues fall at the risk of the lack of a proper objective evaluation. As such, this analysis argues that although the study aimed at evaluating the SMEs, it failed to use their perceptive. Instead of using the perspective of the insurance company, it should have used an SME case study for the evaluation of how they perceive human capital risks. Practical Implications The key article findings can be applied to the UAE SMEs in a number of ways. The first approach through which the findings can be applied is in the classification of human capital risks for the SMEs. In this case, the article sheds light on the classification of risks as either insurable or uninsurable. On one hand, the SMEs can use this classification to establish the key risks that they can insure and as such reduce their risk burden in the long run period. On the other hand, the risks classification offers the ventures an opportunity to learn and understand the risks that cannot be insured such as inadequate employee training and discrimination. In this regard, the organisations can apply the findings as a basis for developing their risk management systems. As such, under risk evaluation and analysis, the element of their insurability should be placed as a vital aspect. Currently, in the UAE, most of the organisations evaluate their risks in terms of their potential impact on the organisation. As such, the current risk evaluation system priorities the risks in the SMEs based on their probability of occurrence and their potential impact of the organisation. Based on the article findings, it is clear that the approach has a limitation; this is because it fails to incorporate the probability of transferring the risks and reducing the overall burden. For instance, this review applies the human capital risks on employee turnover and employee diversity. In the event that there is a high employee turnover, the organisation falls at the risk of losing out on its most talented employees. On the other hand, a high employee discrimination risk reduces the overall ability and motivation for the discriminated employees to perform accordingly. In this case, the organisations could rank the risk of employee turnover as more extreme in the sense that it has more ripple effects on the company than the risk of employee discrimination. This is the standard trend in the UAE and other global SMEs. However, the article findings can be applied to change this risk assessment and evaluation method. On its part, the article indicates that the human capital risks should be evaluated based on the burden point for each risk occurrence. In this case, for the above two case study examples, t is apparent that they lay their burden on different end points. On one hand, the risk for employee turnover is an insurable risk that the ventures can resolve through insuring with policies such as pension and healthcare insurance for the employees. In this case, the actual burden and impact of the risk is not the actual perceived employee turnover risk, but the value of the premiums the organisation pays to the insurance company for the respective risks insurance. On the other hand, the employee discrimination risks cannot be insured and as such, the overall impact and risk vale is the total loss of work hours and manpower. Therefore, based on the article analysis it is the clear that the risk of employee discrimination bears more weight and potential loss to the SMEs than the employees turnover. Thus, this analysis argues that the study findings can be applied to alter the manner in which SMEs evaluate and assess risks in the market. As such, it advocate for the new evaluation measure of first classifying the risks into either insurable or uninsurable Once this is achieved, the second step should be to analyse and value the insurable risks based on the premiums paid to insure them based on the existing insurance policies. As such, this review notes the organisations should classify the uninsurable risks as the most challenging risks in the market. Hence, the above analysis notes that the article findings can be applied as a means of changing the SMEs risks analysis and evaluation process and the manner in which a risk is perceived as vital and bearing more challenge to an SME that is contrary to the current risk management system. Conclusion In summary, the essay offers a critical analysis of the ‘Insurances for human capital risk management in SMEs’ article. In this case, the analysis is a review of the findings categorised into different segments. First, the study evaluated the overall study summary as well as the key study findings. It establishes that the study’s main finding was the classification of human capital risks into either insurable or uninsurable risks respectively. On one hand, the insurable risks are the ones that have existing insurance policies and that the insurance companies are ready to offer an insurance plan for. On the other hand, it established that the uninsurable human capital risks that the organisations have control over. In a further critical analysis of the article, the study established strengths in its risks classification, arguments and findings. However, it points out weak areas in the study applied methodology that was not based on an SME organisation. Moreover, it offered generic recommendations that did not meet the SMART objectives for an actionable recommendation. Finally, the analysis established that the article findings can be used as a new approach to evaluating and analysing risks in the UAE based SMEs. As such, the essay establishes that the article, besides its identified limitations, has delivered on the overall intended deliverables. Moreover, its findings can be generalised and applied in the UAE market as well as in other global SMEs. Further, the article findings contribute to a new set of literature on how SMEs can evaluate and rank their human capital risks in the future. References Biener, Christian, Martin Eling, and Jan Hendrik Wirfs. "Insurability of Cyber Risk: An Empirical Analysis†." The Geneva Papers on Risk and Insurance-Issues and Practice 40.1 (2015): 131-158. Cardon, Melissa S., and Christopher E. Stevens. "Managing human resources in small organizations: What do we know?." Human resource management review 14.3 (2004): 295-323. Cortina, Lilia M., et al. "Selective incivility as modern discrimination in organizations evidence and impact." Journal of Management 39.6 (2013): 1579-1605. Gao, Simon S., Ming C. Sung, and Jane Zhang. "Risk management capability building in SMEs: A social capital perspective." International Small Business Journal 31.6 (2013): 677-700. MacLeod, Les. "Making SMART goals smarter." Physician executive 38.2 (2012): 68-72. Maenpaa, Irinja, and Raimo Voutilainen. "Insurances for human capital risk management in SMEs." VINE 42.1 (2012): 52-66. Read More