Risk retention, noninsurance transfers, and insurance each have advantages and disadvantages for managing risks. Retention saves money but could lead to higher losses. Noninsurance transfers may cost less than insurance but contracts could be ambiguous. Insurance reduces uncertainty and provides services, but premiums are a major cost. The optimal risk management approach considers each option's pros and cons.

1. Risk Retention
Noninsurance Transfers
Insurance
Advantages And Disadvantages For Above

2. Advantages Of Retention
•Save money
•Lower Expenses
•Encourage Loss Prevention
•Increase cash Flow

3. •Possible Higher Losses
•Possible Higher Expenses
•Possible Higher tax
Disadvantages Of Retention

4. • Are methods other than insurance by which a
pure risk and it’s potential financial
consequences are transferred to anther party .

5. •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

6. •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

7. • If the Risk Manager uses insurance to
treat certain loss exposures, five key
areas must be emphasized .

8. 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

9. • Is a provision by which a specified amount
is subtracted from the loss payment other
wise payable to the insured .

10. • 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 .

11. •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

12. •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