An insurance company chartered under the laws of a state or other U.S. jurisdiction, composed of members whose business activities are similar, and controlled by its members.
Insurance Encyclopedia
Risk retention groups
Member-owned liability insurance companies. Set up in the US in the face of a ‘hard market’, a number of trade associations or groups of companies combined to form risk retention groups as allowed under the Liability Risk Retention Act 1986. The groups operate as insurance companies limited to writing liability covers for groups with a common interest. RRGS require members to capitalise the company. Many of the groups focus on pollution liability or product liability.
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A type of liability insurer owned by the policyholders. The members in this type of organization must be in the same type of business, so that they are exposed to the same type of liability risks. The organization spreads liability equally between the members and offers a different way of financing a liability.
Risk retention techniques
Risk assumption techniques.
Risk score
Measurement of the costs of an enrollee who has specific risks compared with the cost of care for the average beneficiary in a managed care plan.
Risk selection
See: cherry picking .
Risk sharing
In managed care plans, methods used in which the plan and contracted providers share the financial risks and benefits to care for the plan members in a cost-effective manner (e.g., capitation, risk pools, per diem contracts). It is a system used to control health care costs.
Risk spread
See: risk pool .
Risk tolerance
The amount of risk that an investor, individual or business is willing to assume to achieve a specific goal. Risk tolerance is a function of financial capacity, willingness to take risks and the overall profile of the business or individual. The risk profile can be plotted on a risk map, i.e. a probability/ impact matrix. Financial services professionals need to understand the risk tolerance levels of their clients. See Figure 7.
Risk Transfer
REINSURANCE: A key element of reinsurance, whereby insurance risk is shifted from the reinsured to the reinsurer under a reinsurance agreement. In order for a reinsured to receive statutory and GAAP credit for reinsurance, a threshold of both underwriting risk and timing risk transfer must be achieved. See Risk.
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UK: One party transfers the financial effects of his loss to another party. In insurance the insured transfers the possibility of loss to the insurer in return for the premium. Other forms of risk transfer can be found in contracts and leases that are used to transfer risk from one party to another to the extent permitted by law (see UNFAIR CONTRACT TERMS ACT 1977). Risk transfer of a different kind occurs where an activity is transferred from one party to another, e.g. the sub-contracting of a hazardous process to another party, but this could also be termed an example risk avoidance.
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Using funds that originate outside the organization.
Risk treatment
Decision stage of risk management when the firm decides how to respond to risk. The options include risk transfer (insurance and non-insurance), risk financing; reduction, avoidance, prevention, control, etc. This is followed by implementation.