METHODS OF HANDLING RISK


METHODS OF HANDLING RISK
Passive Risk Retention
Risk can also be retained passively. Certain risks might be unknowingly retained because of ignorance, indifference, or laziness. This is often dangerous if a risk that's retained gets the potential for destroying a person financially. Like, many persons with earned incomes are not insured against the chance long-term disability under either someone or group disability income plan. However, the adverse financial
consequences of a long-term disability generally are more severe than premature death. Thus, those who
are not insured against the chance of long-term disability are utilizing the means of risk retention in a most dangerous and inappropriate manner.
To sum up, risk retention is definitely an extremely useful technique for handling risk, especially in a modern corporate risk management program. Risk retention, however, is appropriate primarily for high frequency, low severity risks where potential losses are relatively small. Except under unusual circumstances, someone shouldn't use the means of risk retention to retain low frequency, high severity risks, like the danger of catastrophic losses like earthquake and floods.




Comments

Post a Comment

Popular posts from this blog

BASIC CATEGORIES OF RISK

BASIC CATEGORIES OF RISK With regards insurability, there are basically two categories of risks; 1. Speculative or dynamic risk; and 2. Pure or static risk Speculative or Dynamic Risk Speculative (dynamic) risk is a situation in which either profit OR loss is possible. Examples of speculative risks are betting on a horse race, investing in stocks/bonds and real estate. In the business level, in the daily Lesson 1  Understanding and Managing Risk  5 conduct of its affairs, every business establishment faces decisions that entail an element of risk. The decision to venture into a new market, purchase new equipments, diversify on the existing product line, expand or contract areas of operations, commit more to advertising, borrow additional capital, etc., carry risks inherent to the business. The outcome of such speculative risk is either beneficial (profitable) or loss. Speculative risk is uninsurable. Pure or Static Risk ...
Read more

HOW PRINCIPLE OF CONTRIBUTION WORKS IN INSURANCE

HOW PRINCIPLE OF CONTRIBUTION WORKS IN INSURANCE Principle of contribution is implemented when multiple insurance policies are covering the same property or loss, the total payment for actual loss is proportionally divided among all insurance companies. In insurance, the principle of contribution in born from principle of indemnity. It is used to will maintain continued existence to preserve the principle of indemnity Therefore, principle of contribution only applies to those insurance contracts which are contracts of indemnity. In fact, however, there would have been possibilities of getting more than the actual loss had the principle of contribution not been established with legal force. Just to give a probability, the insured would have received a claim in full, numbers of times, by affecting numbers of policies with different insurers thereby defeating entirely the principle of indemnity. Like subrogation, therefore, has come up the principle of contributi...
Read more

FEATURES OF INSURANCE CONTRACT

FEATURES OF INSURANCE CONTRACT Though all contracts share fundamental concepts and basic elements, insurance contracts typically possess a number of characteristics not widely found in other types of contractual agreements. The most common of these features are listed here: (a) Aleatory If one party to a contract might receive considerably more in value than he or she gives up under the terms of the agreement, the contract is said to be aleatory. Insurance contracts are of this type because, depending upon chance or any number of uncertain outcomes, the insured (or his or her beneficiaries) may receive substantially more in claim proceeds than was paid to the insurance company in premium dollars. On the other hand, the insurer could ultimately receive significantly more money than the insured party if a claim is never filed. (b) Adhesion In a contract of adhesion, one party draws up the contract in its entirety and presents it to the other party on a 'take it or leave it' ba...
Read more