Special risks: Overview, definition, and example
What are special risks?
Special risks refer to unique or unusual risks that are not part of the standard or typical risk profile associated with a business, investment, or project. These risks may arise from specific circumstances, events, or activities that carry a higher level of uncertainty or potential for loss. Special risks can include factors such as environmental hazards, legal changes, technological disruptions, or market volatility that are not easily predictable or typically considered in standard risk assessments. Managing special risks often requires specific attention, strategies, and risk management practices to mitigate their impact.
Why are special risks important?
Special risks are important because they can have a significant impact on a business or investment that is not accounted for in normal risk assessments. If left unmanaged, special risks can lead to substantial financial losses, legal consequences, or reputational damage. Identifying and understanding these risks allows businesses to develop targeted strategies to manage or mitigate them, ensuring the long-term sustainability and success of the business. Recognizing special risks helps businesses remain agile, adapt to unforeseen circumstances, and better prepare for potential disruptions.
Understanding special risks through an example
Let’s say a company invests in a new, cutting-edge technology that is still in its early stages of development. While the technology has the potential for high returns, it also carries special risks, such as the possibility of technological failure, regulatory changes, or market rejection. The company must assess these unique risks and take measures, such as conducting thorough research and investing in insurance, to manage the potential impact.
In another example, a construction company takes on a project in a region prone to natural disasters, like earthquakes or floods. This geographic location introduces special risks that the company must account for, such as the potential for property damage or project delays due to unforeseen events. The company might purchase specialized insurance or implement additional safety measures to mitigate these risks.
An example of a special risks clause
Here’s how a clause related to special risks might appear in a contract:
“The Company acknowledges that the Project involves special risks, including [insert specific risks], which may lead to delays, increased costs, or operational disruptions. The Company agrees to implement risk mitigation strategies, including obtaining appropriate insurance coverage, and to notify all relevant parties of any material changes to the risk profile.”
Conclusion
Special risks represent unique or unforeseen factors that can have a significant impact on business operations, investments, or projects. Identifying and managing these risks is essential for protecting against potential losses and ensuring the successful execution of plans. By developing strategies to address special risks, businesses can reduce the uncertainty and negative consequences associated with unusual or unpredictable events, allowing for smoother operations and long-term success.
This article contains general legal information and does not contain legal advice. Cobrief is not a law firm or a substitute for an attorney or law firm. The law is complex and changes often. For legal advice, please ask a lawyer.