Strategic Risk Financing
Definition of "Strategic risk financing"
Elimination of unnecessary financing costs and the redirection of those sums to activities that are more profitable. The concept is for the company to have a long-term view of its risk exposure as opposed to concentrating on the availability of insurance at any time. For example, in a soft market, companies tend to buy more insurance than they need because premiums are low. In a hard market, companies tend to retain their insurance coverage regardless of price. The methodology involves a cost/benefit analysis of the numerous risk retention options to discern the difference in the cost of a retention option and that of full/partial insurance for that option. In the analysis of each option, the company's past loss experience is examined and maximum possible loss scenarios in the future are projected. After the statistical studies are completed, a program is designed to provide an effective plan of risk coverage at an efficient price.
Popular Insurance Terms
Insurance company whose corporate charter and bylaws prevent assessment of its policyowners, regardless of how adverse its loss and expense experience may become. ...
Deductible that applies for the year. For example, a business pays for the first $40,000 of losses incurred during the year and the insurance company pays for all losses above that amount ...
Relationship of the frequency of deaths of individual members of a group to the entire group membership over a particular time period. ...
Technique of estate planning under which an estate is divided into two parts and taxed at a lower rate rather than remaining as a whole and taxed at a higher rate. This division may be ...
Rate not subsequently adjusted. The rate stays in effect regardless of an insured's subsequent loss record. ...
Expenses added to the beginning of a premium payment period. For example, an annuity with a 10% front load would include $10 of expenses for each $100 premium paid. ...
Relationship of incurred losses plus loss adjustment expense to earned premiums. ...
Method of classifying risks to establish equitable rates. In many property and liability insurance lines, the location of an insured has a significant impact on the loss experience. For ...
The term mutually exclusive defines an instance when the occurrence of a specific event makes the emergence of another event impossible. Then, two or more things can be described as ...
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