How can
Risk be
Treated
Risk Management
Various risk control methods
and their operation
Avoidance
In order to completely eliminate the risk, plans
or procedures must be changed. This could mean
deciding against participating in some activities
that carry an excessive amount of risk.
Loss prevention
While acknowledging a danger, loss prevention
aims to reduce losses rather than completely
eradicate them.
Various risk control methods
and their operation
Loss reduction
- acknowledges the risk and works to reduce
losses when a danger materializes.
Separation
- involves dispersing key assets so that
unfavorable occurrences solely impact the
business at that specific location. If all asset was
located in one location, the company would face
more significant problems.
Various risk control methods
and their operation
Duplication
- creating a backup plan, often with the use of
technology.
Diversification
- the process of allocating business resources to
establish several business lines that cater to
various industries and offer a range of products
or services.
How and Why Risks may be Spread or Hedged
How do we spread or hedge risks?
Diversification
Insurance
Asset Allocation
Options and Derivatives
Why do we spread or hedge risks?
Risk Reduction
Cost Reduction
Preservation of Capital
Stability and Predictability
Psychological Comfort
The use of insurance as a risk transfer mechanism
(insurability, benefits of insurance, co-insurance)
Insurability
Insurance and its Benefits
Co-insurance
R
SU ED
IN
NI REUS
INSURANCE
Premium
Sum Insured
Sum Assured
COMPONENT
Policy Limit
Pre-Claim Limit
Per-Policy Period Limit
Aggregate Limit
Deductible
INSURABILITY
Benefits of Insurance
Financial safety for family
Safety of Financial Status
Wealth Creation Goals
Wealth Preservation
Wealth Distribution
Coinsurance
Coinsurance is the
percentage under an
insurance plan that the
insured person pays
toward a covered
expense or service.
Coinsurance kicks in
after the policy
deductible is satisfied.
Waiver of coinsurance
A waiver of coinsurance clause is a provision
in an insurance contract stating that the insurer
will not require the policyholder to pay
coinsurance, or a percentage of the total claim,
under certain conditions.
Risk transfer mechanisms
Commercial contracts
Disclaimers
Self-insurance
Alternative risk
Commercial Contract
- Contractual risk transfer (CRT) is a risk
management strategy businesses can use to
shift certain risks associated with a project
or business operation to another party
through a contractual agreement.
Common contractual risk transfer
mechanisms
Disclaimer
- Disclaimers are
statements that a
company uses to limit
its responsibility for
potential problems or
damages.
Disclaimer
Self Insurance
-Self-insurance is when a company or
person saves up their own money to cover
possible losses instead of buying insurance
from a company.
Alternative Risk
-Alternative risk refers to ways of
transferring risk that are not traditional
insurance.
Alternative Risk Transfer (ART) Market
a portion of the insurance market that allows companies
to purchase coverage and transfer risk without having to
use traditional commercial insurance.
segment of the insurance market that offers companies
innovative ways to manage and transfer risk beyond
traditional commercial insurance.
KEY COMPONENTS OR ART MARKET
Risk Retention Groups (RRG's)
Insurance Pools
Captive Insurers
Alternative Insurance Products
2 PRIMARY SEGMENT OF (ART) MARKET
Risk Transfer through Risk Transfer through
ALTERNATIVE CARRIERS ALTERNATIVE PRODUCTS
• Transferring risk to alternative • Transferring risk to alternative
carriers entails finding products through purchase of
organization that are willing to insurance policies or other
take on some of the insurers risk financial product.
for a FEE. • Such as;
• Such as; ✓ Securities
✓ Captives Insurers
✓ Pools
✓ Self Insurance
BENEFITS OF ALTERNATIVE RISK
TRANSFER (ART)
Flexibility
Cost Efficiency
Greater Control
Risk Financing
Risk financing is the determination of how
an organization will pay for loss events in
the most effective and least costly way
possible.
Risk financing is designed to help a
business align its desire to take on new
risks to
How a company manages situations that
call for risk financing is a good indicator of
that organization's competitiveness and
potential for long term success.
Thank you for
listening!
GROUP 4
