However there are two distinctive approaches to risk

However, there are two distinctive approaches to risk management which include; the traditional
and strategic approaches. The traditional approach of risk management is based on a process that
aims at identifying, measuring and treating exposures to potential accidental losses. This focus
on the negative impact of risk and as a consequence- is based on assessing the probability of the
loss frequency and severity .Williams/ Heins (1994), cited in [ CITATION Wie14 \l 1033 ].The
risk treatment methods are directed to either reduce the loss frequency or loss severity which is
conducted by the application of risk control tools including; risk avoidance, risk prevention or
repression and financial control tools such as risk retention and transfer in particular, the
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insurance risk transfer. Loss control, claim analysis and optimal insurance coverage remain
prime areas of managerial concern. The strategic approach of risk management on the other hand
is perceived as an essential revolution of the ideas of risk management Baranoff 2004; Chapman
2006:4 cited in [ CITATION Wie14 \l 1033 ]. This approach is often referred to as a holistic or
integrated approach that focuses on both the down side and upside of risk. The integration of risk
management postulates to perceive the problem of risk in a holistic manner and assume the
interdependencies of risk rather than so called ‘silo’ (that is piecemeal) approach. This approach
to risk management is also based on more advanced risk management techniques compared to
those in the traditional concepts. It addresses both the advancement in risk analysis techniques
most notably the application of quantitative analysis and risk based indexes and risk treatment
techniques. According to Culp 2002:13-14; cited in [ CITATION Wie14 \l 1033 ], the later trend
is caused by the growing integration between the capital market and the insurance market and the
use or application of new risk management techniques appearing such as Alternative Risk
Finance (the ARF) instruments.
To what extent have these tools and techniques of control been managed effectively to ensuring
profitability of the insurance companies in Ghana?[ CITATION Bom05 \l 1033 ]Stated that only
if risks are robustly quantified and measured is it possible to set benchmarks that treats the
different line of business and affiliates in different jurisdictions in a fair way, and only then is it
possible to detect value creating and value destroying businesses and to formulate appropriate
strategic mechanisms of response around these insights. However, in the review of relevant and
related literature, it is observed that much study have been conducted with respect to the effects
of risk management to ensuring profitability in the various sectors of the economy but only a
little has been done with respect to the insurance companies and this necessitates the need to fill
this gap of knowledge.