RISK FINANCING
Insurance contracts do not cover all possible losses or even the total cost of such losses due to various reasons.
Risk financing deals with ensuring that there is funding available to offset the financial consequences of risk exposure.
Like the other risk-sharing methods (with the stipulation of a policy, in essence, a partnership with the Insurer is created, so the term “Risk sharing” is used), risk financing does not prevent the occurrence of loss, (a share of the damage will always be charged to the organization);
In the long term, any financing agreement works effectively as long as there is shared responsibility of the financial consequences of the events, spreading the cost over a certain number of years.
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Traditional risk financing options. The diagram illustrates the traditional risk finance options used by organizations to finance their exposures. The most common methods of risk finance are:
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