Risk Retention

Risk Retention Noninsurance Transfers

InsuranceAdvantages And Disadvantages For Above

Advantages Of Retention •Save money

•Lower Expenses

•Encourage Loss Prevention

•Increase cash Flow

•Possible Higher Losses

•Possible Higher Expenses

•Possible Higher tax

Disadvantages Of Retention

Noninsurance Transfers • Are methods other than insurance by which a

pure risk and it’s potential financial consequences are transferred to anther party .

•The risk manager can transfer some potential losses that are commercially

insurable

•Noninsurance transfer often cost less than insurance

•The potential loss may be shifted to some one who is in a better position to exercise

loss control

Advantages Of Noninsurance

• The transfer of potential loss may fail Because the contract language is ambiguous

•If The party to whom the potential loss is transferred is unable to pay the loss the firm

is still responsible for the claim

•An insurer may not give credit for the transfers, and insurance cost may not

always be reduced

Disadvantages Of Noninsurance

Insurance • If the Risk Manager uses insurance to

treat certain loss exposures, five key areas must be emphasized .

A.

B.

C.

D.

E.

Five Key

Periodic review of the program

Dissemination of information concerning insurance coverage's

Selection of insurance coverage's

Selection of an insurer

Negotiation of terms

Deductible • Is a provision by which a specified amount

is subtracted from the loss payment other wise payable to the insured .

Excess insurance • A plan in which the insurer does not participate

in the loss until the actual loss exceeds the amount a firm has decided to retain .

•The firm will be indemnified after a loss occurs the firm can continues to operate and

my experience litter or no fluctuation in earnings

•Uncertainty is reduced

•Insurance can provide valuable risk management service

•Insurance premiums are income-tax deductible as a business expense

Advantages Of Insurance

• The payment of premiums is a major cost

•Considerable time and effort must be spent in negotiating the insurance coverage's

•The risk manager may have less incentive to follow a loss-control program

Disadvantages Of Insurance