Risk Retention & Financing
The Risk Financing Strategy is a component of the overall Risk Management Strategy. The purchase and structuring of insurance must be informed by the organization overall risk management philosophy as well as its risk appetite which can be clearly defined. These would give the organization a foundation on which to approach and structure its insurance taking advantage of all the different aspects of insurance as well as alternative risk financing mechanisms.
Risk financing is an integral part of the overall risk management programme and should be focused on cost as well as the long-term ability of the organization to reduce its own risk through measurable and sustainable actions and thus avoid any rand swapping exercises with insurers.
The decision to implement risk financing is informed by the loss trajectory of the entity over time in combination with its risk appetite. Risk financing when applied correctly can and should eventually lead to savings on the Total Cost of Risk (COR).