General Insurance - Methods of Handling Risk
Avoidance
Eliminating exposure to loss
Sharing
Method of dealing with risk for a group of individual persons or businesses with the same or similar exposure to loss to share the losses that occur within that group. A reciprocal insurance exchange is a formal risk-sharing arrangement.
Retention
Planned assumption of risk by an insured through the use of deductibles, co-payments, or self-insurance. The purpose of Retention is to 1) Reduce expenses and improve cash flow 2) Increase control of claim reserving and claims settlements 3) Fund for losses that cannot be insured.
Reduction
Actions such as installing smoke detectors in homes, having an annual physical to detect health problems early, or making changes in our lifestyles
Transfer
Most effective way to handle risk. Insurance is the most common method of transferring risk from an individual or group to an insurance company. Purchasing of insurance will not eliminate the risk of death or illness, it relieves the insured of the financial losses these risks bring.