Corporate Risk Management: Insurance Currently,

Corporate Risk Management: Insurance Currently, companies face a variety of issues when considering insurance. One of these issues pertains very prominently to financial risk insurance. The main factor playing a role in such insurance is the attitude adopted by insurance companies after the terrorist attacks of September 11, 2001. This attitude contrasts strongly with the pre-2001 insurance trends, in which companies offered multi-year and multi-product packages. After the severe losses related to the terrorist attacks, insurance companies found themselves returning to a more focused product, for which more is charged.

Furthermore, the higher insurance rates also include lesser cover, increasing the risk faced by the company. In order to mitigate the significantly higher investments that this necessitates in terms of insurance, companies have been obliged to find creative ways of mitigating financial risks. While insurance therefore still plays in important part in a company's business, this is not the only way in which financial risk is diminished.

In fact, companies have been obliged not only to consider the risk insurance policies in which they invested, but also the precise items being ensured, how these are ensured, and the effect should the risk become a reality. As a result, additional strategies such as alternative risk financing have been adopted by an increasing amount of companies. The primary driver for such strategies is the minimization of investment premiums. One alternative is solutions focusing only on potentially catastrophic exposures.

Less imminent risks are then carried by the company rather than insured by an outside entity. Another alternative favored by many companies is a solution to fund high initial risk levels. This entails a fairly high payout to the company as a reward for low or nil claims. In effect, this strategy offers a lower overall premium than mainstream financial risk insurance. In many ways, conventional insurance fails to cover the needs of the modern organization.

Indeed, having implemented stricter insurance policies, some have completely withdrawn certain cover areas, leaving companies widely exposed to their respective risk categories. 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.

Captives are another less costly alternative to conventional financial insurance. Captives offer organizations tax benefits and flexibility in terms of what.