Skip to Content
Dick Law Firm, PLLC Dick Law Firm, PLLC
Call Us Today! 833-774-4487

How do insurance companies manage risk?


What are ways to reduce insurable risk?

Risk management is a way to deal with the uncertainty surrounding potential losses (Risk). You face many types of risks in your daily life, even if you aren't aware of them. Most of the risks are small, but hazards such as automobile accidents, severe health conditions, or loss of life can have a financially devastating effect. So, how do we prevent the risk? Here are five basic strategies:

1. Sharing Risk.

Risk-pooling disperses risk to some people. Each individual pays a portion of the risk-based on how much they have put in. Suppose we agree to jointly buy a boat together with a purchase price of $10,000. We agree to pay a total of $4,000 and $6,000, respectively. Instead of paying premium insurance, we self-insure the boat. I will bear 40 percent of any loss that occurs, and you will take 60 percent of it, too.

2. Transferring risk.

Insurance is the most common way of transferring risk, but not the only way. When you buy insurance, you are paying someone else to take over your risk of something. You purchase insurance for your car or home. The insurance company assumes the risk of loss should the vehicle or home be damaged. Another risk transfer method, a hold-harmless agreement, may be used in some instances. A legally binding contract whereby one party agrees to hold the other party liable for any loss or damage that might arise throughout the contract. You agree to provide cleaning services to our office building. Still, we require you to sign a hold-harmless agreement indemnifying (securing against potential loss) us if you negligently cause death or injury. I have placed that risk in your hands.

3. Avoid Risks.

To stack things up, do not engage in an activity that carries potential risks. You can reduce the chance of an accident by never getting into a car. You won't be able to lose your retirement savings on investments with fixed rates. You are exposing yourself to less risk.

4. Reduce risk.

There is a lack of absolute safety, and the only way to control the risk level is by using risk reduction techniques. For example, without a fire suppression system, a fire in your home is likely to be more destructive than a fire with a fire suppression system. Or, you can lower your risk of dying in a sky diving accident by giving up skydiving and other spontaneous recreational activities.

5. Manage risk.

Financial responsibility is choosing to purchase insurance to cover all or part of a risk. It's on you if a loss does occur. An excellent example of this is our recent purchase of a boat. Both of us lost a certain amount equal to what we both put down when purchasing the boat. Another way of risk retention is when a policy has a deductible. You are automatically insured for a certain amount of the deductible.

What is risk management?

Risk management is a tool used by many insurance companies that reduces their risk level. A company purchases supplemental insurance from another insurance company to better manage its risks. The reinsurer guarantees the company against potential losses.

What is a reinsurer?

The insurance company's reinsurer agrees to reduce the number of losses paid by each party (either more than a certain amount or a percentage). The reinsurer gets their money from the primary insurer, and the insurer issues each policy.

As a fictional example, assume the large insurance company sells 1,000 policies, each with an average policy limit of $100,000.

$1 million is allocated to American RE (the reinsurer). In theory, the insurer could lose $1 billion. It would make more sense to distribute some of its risks to help mitigate their losses. In plain terms, a reinsurer is a company that insures another insurance company.

What are the principles of exoneration?

Indemnify means to repay, and indemnifying means to make liable. The indemnity principle stresses that an insurer will restore you to your pre-loss financial status: no profit, no loss. To indemnify means to make whole after loss, and also means to protect against loss. However, you are not entitled to any additional monetary compensation beyond your damages. There should be no benefit from your pain, just restoration.

Once your house is burnt down, the insurance company will provide you with a rebuilt house of the same quality. Out of spite, they will not build a larger home for you. We learned earlier that insurance companies are willing to insure pure risks or unharmed people. There is no gain or profit with pure risk.

If your house catches fire, the insurance company will not replace it with this specific product.

home insurance rates
state farm homeowners insurance quote
progressive manufactured home insurance
homeowner insurance quote
can you get insurance for an unoccupied house?
budget direct home insurance
affordable homeowners insurance
the general homeowners insurance
florida homeowners insurance quotes
allstate homeowners insurance florida
home insurance geico
house insurance home insurance quotes
allstate homeowners insurance texas
vacant home insurance geico
home insurance agent
homeowners quotes
homeowners insurance geico
homeowners insurance policy quote
auto & home insurance quotes
allstate homeowners
house insurance companies near me
home insurance brokers near me
insurance for homeowners
when to get homeowners insurance when buying a house
home and auto insurance bundle quotes
progressive direct insurance
progressive renters insurance phone number
home insurance quotes geico
home insurance prices
do you have to have home insurance
who has the best home insurance?
geico hazard insurance
building insurance
colorado homeowners insurance rates increase
home insurance comparison
home ins
geico homeowners insurance login
allstate home insurance phone number
home and auto insurance quotes
nationwide home insurance quote
home replacement cost estimator
home insurance texas
online homeowners insurance
best home insurance rates
best house insurance
home insurance quotes comparison
dc home insurance rates
baltimore homeowners insurance
housing insurance
progressive condo insurance
nerdwallet home insurance
homeowners insurance los angeles
purchase home insurance online
shopping for homeowners insurance
geico home
shop for home insurance
homeowner quotes
insurance homeowners
homeowners insurance quotes compare
looking for homeowners insurance quote
homeowners insurance online purchase
get a homeowners insurance quote online
progressive auto insurance near me
progressive condo
good home insurance
best home insurance company
allstate home insurance reviews
homeowners quote
home insurance estimate
how to shop for home insurance
auto and home insurance quotes
best homeowners insurance rates
home insurance online
national home insurance
who has the cheapest home insurance?
homeowners insurance comparison
home insurance companies near me
home insurance quotes online
online home insurance quote
house insurance companies
home insurance uk
the general home insurance
best homeowners insurance in texas
fire insurance quote
how to get home insurance quotes
allstate vs state farm home insurance
progressive landlord insurance
allstate mobile home insurance
home insurance state farm
state farm home insurance florida
compare home insurance rates
homeowners insurance online quote
geico house
how to find homeowners insurance
state farm florida
homeowners insurance comparisons
buying homeowners insurance for the first time
allstate quote online
nationwide insurance homeowners
progressive mobile home insurance
geico homeowners insurance quote
home insurance brokers
online homeowners insurance quote
car and home insurance quotes
home insurance florida calculator
farmers homeowners insurance
house insurance quote
quote for home insurance
average monthly home insurance cost
home and car insurance quotes
home insurance building
homeowners insurance near me
state farm home insurance phone number
car and home insurance
home insurance cost
home insurance reviews
compare home insurance
home insurance near me
shop homeowners insurance
house insurance cost
progressive home insurance quote
state farm homeowners insurance florida
allstate home insurance quote
compare homeowners insurance
progressive insurance agent near me
dwelling coverage calculator
best and worst homeowners insurance companies
auto and home insurance
progressive auto insurance customer service
asi home insurance
best home insurance
compare home insurance quotes
state farm home insurance reviews
renters insurance progressive
progressive home advantage
does geico have home insurance
state farm home insurance quote
farmers home insurance
farmers insurance quote
progressive retrieve quote
progressive car insurance login
state farm homeowners insurance
home insurance florida
homeowners insurance quotes
insurance calculator
progressive insurance address
progressive insurance claims
allstate homeowners insurance
progressive insurance claims phone number
home insurance calculator
home insurance quote
nationwide home insurance
geico home insurance quote
best home insurance companies
average home insurance cost
home insurance companies
nationwide homeowners insurance
cheap homeowners insurance
progressive homeowners insurance
nationwide insurance quote
homeowners insurance quote
allstate home insurance
state farm insurance near me
geico homeowners insurance
amica home insurance
best homeowners insurance
progressive payment
house insurance
home insurance quotes
progressive auto insurance login
progressive bill pay
progressive insurance phone number
state farm home insurance
progressive auto insurance quote
state farm insurance quote
progressive renters insurance
progressive home insurance
geico home insurance
home insurance
auto insurance quotes
homeowners insurance
progressive insurance login
progressive auto insurance
car insurance