What is the best way to manage a risk? The answer which comes instantly to our mind is by purchasing an insurance cover. But just by taking an insurance cover do you think your risk financing strategy is complete? The answer is No!In fact, purchasing an insurance cover is the last resort in the total `risk financing strategy'. Insurance can compensate any specific or big losses, but what about the daily accidental losses borne by an industrial unit.They have to be borne by the unit itself as the insurance company will not pay for them.
The company should rely on mobilizing its own resources, and make the staff more concerned about and focused on minimizing the frequent accidents. This will help in retention of risk, help in better risk management, and ultimately help to save the organization's money that flows into insurer's profit. Figure 1 discusses this issue further in perspective of some key points.
Insurance does not pay for small accidental losses and has a deductible clause in all policies wherein up to a particular amount the insured has to bear the loss himself. Often this deductible can be a substantial amount if the losses occur in phases. Thus, most of the smaller claims have to be borne by the company. Sometimes, the companies do not claim small losses in order to get the no claim bonus advantage. If the amounts of series of losses are clubbed together the resultant sum may be substantial
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