RMI 2101 Study Guide - Midterm Guide: Medical Malpractice, Underinsured, Reinsurance

123 views8 pages

Document Summary

Sources of funds to pay for losses. External funds transfer (someone else pays) Alternative risk financing mechanisms: risk transfers of the financing type, seek funds from unrelated third party to pay for losses, transfer the f. r. for payment of losses to third party. Insurance: transfer f. r. of a loss to insurer. Non-insurance risk transfers: leases tenant is f. r. for all property losses that occur while occupying the property, hold harmless agreements make contractor f. r, for all liability losses. In all 3 examples, the f. r. for the loss being transferred can be returned to the firm/individual: retention. Firm/individual engaging in retention assumes f. r. for the losses that do occur. Retention examples: not buying insurance, underinsured. Active retention: knowingly retain exposure to loss. Passive retention: retain but you may be unaware, results from, failure to properly id, underestimation of loss exposure. Funded retention: a firm budgets for losses in advance, higher in severity & more predictable.