Corporate Risk Management: Insurance Currently, Term Paper

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Another alternative for companies with uninsurable risks is mutualization. However, this category of insurance carries further risks that may not be suitable for all companies. The main problem is that mutual insurers require participants to be from a homogenous population, making this alternative unviable for a variety of clients. Some companies are however working on overcoming such problems to make mutualization less problematic for their investors.

Some insurance companies now recognize the main concern of organizations for cash flow in the event of a major loss. These insurers then offer such organizations solutions that guarantee cash flow in the form of a possible loan alternative, which is then to be repaid at a later time, when the company has mitigated its loss. Cash flow insurance can then be based upon income factors such as future royalties or rental income, that are generally not shown on current income statements.

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Captives are another less costly alternative to conventional financial insurance. Captives offer organizations tax benefits and flexibility in terms of what is insured and the premium amount they are prepared to pay. It is therefore a less rigid form of insurance, that offers the organization a wider range of choice in terms of both the product and investment in the organization's peace of mind.

In assessing their levels of pure risks and speculative risks, an organization should therefore also assess the insurability of their risks. A primary consideration is the danger of loss and the possibility gain. With the latter, it makes little sense to invest in insurance, as such a strategy is focused only on the risk of loss. Organizations should therefore perform an in-depth risk assessment in order to ensure that the optimal value is gained from each strategy used in risk mitigation, including the….....

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