![\"Insurance\"](\"https:\/\/www.insuringky.com\/blog\/wp-content\/uploads\/2018\/09\/2018-HD-300X150-Trans-PNG.png\")
<\/a>\u00a0 \u00a0 \u00a0 ![\"Understanding](\"https:\/\/www.insuringky.com\/blog\/wp-content\/uploads\/2018\/06\/TruePoint-Insurance-Insights.png\")
<\/a><\/p>\n<\/p>\n
<\/p>\n
<\/p>\n
<\/p>\n
<\/p>\n
<\/h4>\nInsurance<\/h4>\n
Some people think that insurance is risk management.\u00a0 But industry professionals will argue that insurance coverage is only one component of the\u00a0risk management process.\u00a0 What\u2019s the difference between the two?\u00a0 Risk management is a discipline used to identify, evaluate and address specific risks.\u00a0 A risk management plan will utilize one or more of the four risk management methods.<\/p>\n
<\/h4>\nThe Four Risk Management Methods<\/strong><\/h4>\n\u00a0 \u00a0 \u00a0Risk Avoidance<\/strong>\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0 \u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0 \u00a0Risk elimination<\/p>\n\u00a0 \u00a0 \u00a0Risk Reduction<\/strong>\u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 Reduce<\/p>\n\u00a0 \u00a0 \u00a0Risk Sharing<\/strong>\u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0Transfer, Insurance<\/p>\n\u00a0 \u00a0 \u00a0Risk Retention<\/strong>\u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0Do Nothing, Self-Insure<\/p>\n <\/p>\n
So what is Insurance?<\/strong><\/h4>\nIf insurance isn\u2019t risk management, then what is it?\u00a0 Insurance is commonly considered to be a mechanism for risk transfer.\u00a0 If you look up the word insurance, you are apt to find the words \u201ctransfer of risk\u201d or \u201crisk sharing.\u201d\u00a0 So insurance is risk sharing or risk transfer?\u00a0 Yes.\u00a0 But it\u2019s more.![\"\"](\"https:\/\/www.insuringky.com\/blog\/wp-content\/uploads\/2018\/09\/insurance-300x200.jpg\")
<\/p>\n
Insurance is a mechanism that can be used to transfer risk from one party to another. In exchange for a premium, insurance companies will agree to provide indemnification.\u00a0 Indemnification, or the protection against loss, can be purchased to mitigate a large number of exposures.\u00a0 Insurance products exist to transfer both property and liability risks.<\/p>\n
<\/p>\n
Insurance Today<\/strong><\/p>\n“Ah, the joys of homeownership,” words muttered regularly by homeowners.\u00a0\u00a0 Homes generate problems.\u00a0 Many associated with either property or casualty exposures.\u00a0 Typically these risks are transferred to an insurance company through a homeowner\u2019s policy.\u00a0 In a pure form of risk transfer, the insurance company would make the insured whole in the event of a specified loss.\u00a0 But most of us don\u2019t transfer all the risk.\u00a0 The amount we recoup will be the value lost less a deductible.<\/u><\/p>\n
Most property policies have a built-in risk retention mechanism, the deductible.<\/strong>\u00a0 On the surface, this may seem to be negative.\u00a0 But ![\"\"](\"https:\/\/www.insuringky.com\/blog\/wp-content\/uploads\/2018\/09\/deductible.jpg\")
before making these assumptions consider why it\u2019s there.\u00a0 The deductible is in fact risk retention.\u00a0 By retaining the first $500, $1,000 or more, the insured can significantly lower the cost of insurance.\u00a0 Without deductibles, insurers would become inundated by the number of small claims.\u00a0 Smaller claims would also adversely impact administrative cost markedly.\u00a0 Finally, without a deductible, insurance company’s exposure\u00a0to fraudulent claims would likely skyrocket.\u00a0 Without a deductible, insurers would face mounting costs that could only be offset by raising premiums.<\/p>\nAt first blush, deductibles appear to work to the benefit of the insurance companies.\u00a0 Deductibles no doubt benefit insurance companies.\u00a0 But after considering the implications, it would seem that consumers are reaping the most value.<\/p>\n
<\/p>\n
Today\u2019s insurance contains a risk retention component<\/strong><\/h4>\n\u00a0<\/strong><\/h4>\n <\/p>\n
When insurance companies avoid risk it benefits the company and the consumer<\/strong><\/p>\nYou may have learned from experience that insurance companies will not provide coverage in some instances.\u00a0 Insurance companies don\u2019t want all risks.\u00a0 By insuring only the risk that they prefer, they are practicing risk avoidance.\u00a0 Trampolines, pit bulls, fireplaces, and log homes are good examples of risk that many insurance companies avoid.<\/p>\n
Insurance companies underwriting higher risk exposures are expected to have increased losses.\u00a0 What does this mean for the insured?\u00a0 That\u2019s hard to say.\u00a0 It doesn\u2019t mean that you can\u2019t get insurance.\u00a0 You most likely can.\u00a0 It does mean that you will have fewer options and in most cases, reduced competition leads to higher costs.<\/p>\n
<\/p>\n
Rejecting certain risk helps insurance companies, but how does it help the consumer<\/strong><\/p>\nThe practice of risk avoidance improves insurance companies underwriting results.\u00a0 In theory, insurance companies that can successfully manage their risk are more likely to have higher profitability and faster capital growth. \u00a0As the company\u2019s capital grows, so does the need to write additional insurance.\u00a0 If enough insurance companies are experiencing the same results, competition will increase. The increased appetite for risk will ultimately impact the insured, by putting downward pressure on premiums.<\/p>\n
<\/p>\n
Trickle-down risk management<\/strong><\/p>\nThe benefits from risk avoidance can be direct or indirect. The risk avoidance techniques used by insurance companies have both a direct and indirect effect. As mentioned, the direct actions put downward pressure on the cost of insurance. These practices can passively encourage consumers to avoid unacceptable risks. Over time, sound risk management practices trickle-down which further reduce risk management costs. <\/u><\/p>\n
<\/p>\n
Access part 2 of this 2 part series which will be published on 9\/20\/18<\/a>\u00a0<\/em><\/strong><\/h4>\n <\/p>\n
\u00a0 \u00a0 \u00a0\u00a0<\/a>![\"copyrighted](\"https:\/\/www.insuringky.com\/blog\/wp-content\/uploads\/2018\/07\/ALL-RIGHTS-RESERVED-300x49.jpg\")
<\/a>![\"Return](\"https:\/\/www.insuringky.com\/blog\/wp-content\/uploads\/2018\/07\/click-to-return-to-home-page-300x270.jpg\")
<\/a><\/p>\n","protected":false},"excerpt":{"rendered":"\u00a0 \u00a0 \u00a0 Insurance Some people think that insurance is risk management.\u00a0 But industry professionals will argue that insurance coverage is only one component of the\u00a0risk management process.\u00a0 What\u2019s the difference between the two?\u00a0 Risk management is a discipline used to identify, evaluate and address specific risks.\u00a0 A risk management […]<\/p>\n","protected":false},"author":2,"featured_media":0,"comment_status":"closed","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[1,294,69],"tags":[27,621,614,620,626,91,622,627,625,624,623,619],"class_list":["post-667","post","type-post","status-publish","format-standard","hentry","category-insurance","category-insurance-terminology","category-unmanned-aircraft","tag-insurance","tag-insurance-defined","tag-insurance-terms","tag-learn-about-insurance","tag-risk-avoidance","tag-risk-management","tag-risk-management-defined","tag-risk-reduction","tag-risk-retention","tag-risk-sharing","tag-risk-transfer","tag-understanding-insurance"],"aioseo_notices":[],"_links":{"self":[{"href":"https:\/\/www.insuringky.com\/blog\/wp-json\/wp\/v2\/posts\/667","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/www.insuringky.com\/blog\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/www.insuringky.com\/blog\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/www.insuringky.com\/blog\/wp-json\/wp\/v2\/users\/2"}],"replies":[{"embeddable":true,"href":"https:\/\/www.insuringky.com\/blog\/wp-json\/wp\/v2\/comments?post=667"}],"version-history":[{"count":4,"href":"https:\/\/www.insuringky.com\/blog\/wp-json\/wp\/v2\/posts\/667\/revisions"}],"predecessor-version":[{"id":677,"href":"https:\/\/www.insuringky.com\/blog\/wp-json\/wp\/v2\/posts\/667\/revisions\/677"}],"wp:attachment":[{"href":"https:\/\/www.insuringky.com\/blog\/wp-json\/wp\/v2\/media?parent=667"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.insuringky.com\/blog\/wp-json\/wp\/v2\/categories?post=667"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.insuringky.com\/blog\/wp-json\/wp\/v2\/tags?post=667"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}
\u00a0 \u00a0 \u00a0Risk Avoidance<\/strong>\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0 \u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0 \u00a0Risk elimination<\/p>\n \u00a0 \u00a0 \u00a0Risk Reduction<\/strong>\u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 Reduce<\/p>\n \u00a0 \u00a0 \u00a0Risk Sharing<\/strong>\u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0Transfer, Insurance<\/p>\n \u00a0 \u00a0 \u00a0Risk Retention<\/strong>\u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0Do Nothing, Self-Insure<\/p>\n <\/p>\n If insurance isn\u2019t risk management, then what is it?\u00a0 Insurance is commonly considered to be a mechanism for risk transfer.\u00a0 If you look up the word insurance, you are apt to find the words \u201ctransfer of risk\u201d or \u201crisk sharing.\u201d\u00a0 So insurance is risk sharing or risk transfer?\u00a0 Yes.\u00a0 But it\u2019s more. Insurance is a mechanism that can be used to transfer risk from one party to another. In exchange for a premium, insurance companies will agree to provide indemnification.\u00a0 Indemnification, or the protection against loss, can be purchased to mitigate a large number of exposures.\u00a0 Insurance products exist to transfer both property and liability risks.<\/p>\n <\/p>\n Insurance Today<\/strong><\/p>\n “Ah, the joys of homeownership,” words muttered regularly by homeowners.\u00a0\u00a0 Homes generate problems.\u00a0 Many associated with either property or casualty exposures.\u00a0 Typically these risks are transferred to an insurance company through a homeowner\u2019s policy.\u00a0 In a pure form of risk transfer, the insurance company would make the insured whole in the event of a specified loss.\u00a0 But most of us don\u2019t transfer all the risk.\u00a0 The amount we recoup will be the value lost less a deductible.<\/u><\/p>\n Most property policies have a built-in risk retention mechanism, the deductible.<\/strong>\u00a0 On the surface, this may seem to be negative.\u00a0 But At first blush, deductibles appear to work to the benefit of the insurance companies.\u00a0 Deductibles no doubt benefit insurance companies.\u00a0 But after considering the implications, it would seem that consumers are reaping the most value.<\/p>\n <\/p>\n <\/p>\n When insurance companies avoid risk it benefits the company and the consumer<\/strong><\/p>\n You may have learned from experience that insurance companies will not provide coverage in some instances.\u00a0 Insurance companies don\u2019t want all risks.\u00a0 By insuring only the risk that they prefer, they are practicing risk avoidance.\u00a0 Trampolines, pit bulls, fireplaces, and log homes are good examples of risk that many insurance companies avoid.<\/p>\n Insurance companies underwriting higher risk exposures are expected to have increased losses.\u00a0 What does this mean for the insured?\u00a0 That\u2019s hard to say.\u00a0 It doesn\u2019t mean that you can\u2019t get insurance.\u00a0 You most likely can.\u00a0 It does mean that you will have fewer options and in most cases, reduced competition leads to higher costs.<\/p>\n <\/p>\n Rejecting certain risk helps insurance companies, but how does it help the consumer<\/strong><\/p>\n The practice of risk avoidance improves insurance companies underwriting results.\u00a0 In theory, insurance companies that can successfully manage their risk are more likely to have higher profitability and faster capital growth. \u00a0As the company\u2019s capital grows, so does the need to write additional insurance.\u00a0 If enough insurance companies are experiencing the same results, competition will increase. The increased appetite for risk will ultimately impact the insured, by putting downward pressure on premiums.<\/p>\n <\/p>\n Trickle-down risk management<\/strong><\/p>\n The benefits from risk avoidance can be direct or indirect. The risk avoidance techniques used by insurance companies have both a direct and indirect effect. As mentioned, the direct actions put downward pressure on the cost of insurance. These practices can passively encourage consumers to avoid unacceptable risks. Over time, sound risk management practices trickle-down which further reduce risk management costs. <\/u><\/p>\n <\/p>\n <\/p>\n \u00a0 \u00a0 \u00a0\u00a0<\/a> \u00a0 \u00a0 \u00a0 Insurance Some people think that insurance is risk management.\u00a0 But industry professionals will argue that insurance coverage is only one component of the\u00a0risk management process.\u00a0 What\u2019s the difference between the two?\u00a0 Risk management is a discipline used to identify, evaluate and address specific risks.\u00a0 A risk management […]<\/p>\n","protected":false},"author":2,"featured_media":0,"comment_status":"closed","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[1,294,69],"tags":[27,621,614,620,626,91,622,627,625,624,623,619],"class_list":["post-667","post","type-post","status-publish","format-standard","hentry","category-insurance","category-insurance-terminology","category-unmanned-aircraft","tag-insurance","tag-insurance-defined","tag-insurance-terms","tag-learn-about-insurance","tag-risk-avoidance","tag-risk-management","tag-risk-management-defined","tag-risk-reduction","tag-risk-retention","tag-risk-sharing","tag-risk-transfer","tag-understanding-insurance"],"aioseo_notices":[],"_links":{"self":[{"href":"https:\/\/www.insuringky.com\/blog\/wp-json\/wp\/v2\/posts\/667","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/www.insuringky.com\/blog\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/www.insuringky.com\/blog\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/www.insuringky.com\/blog\/wp-json\/wp\/v2\/users\/2"}],"replies":[{"embeddable":true,"href":"https:\/\/www.insuringky.com\/blog\/wp-json\/wp\/v2\/comments?post=667"}],"version-history":[{"count":4,"href":"https:\/\/www.insuringky.com\/blog\/wp-json\/wp\/v2\/posts\/667\/revisions"}],"predecessor-version":[{"id":677,"href":"https:\/\/www.insuringky.com\/blog\/wp-json\/wp\/v2\/posts\/667\/revisions\/677"}],"wp:attachment":[{"href":"https:\/\/www.insuringky.com\/blog\/wp-json\/wp\/v2\/media?parent=667"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.insuringky.com\/blog\/wp-json\/wp\/v2\/categories?post=667"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.insuringky.com\/blog\/wp-json\/wp\/v2\/tags?post=667"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}So what is Insurance?<\/strong><\/h4>\n
<\/p>\nbefore making these assumptions consider why it\u2019s there.\u00a0 The deductible is in fact risk retention.\u00a0 By retaining the first $500, $1,000 or more, the insured can significantly lower the cost of insurance.\u00a0 Without deductibles, insurers would become inundated by the number of small claims.\u00a0 Smaller claims would also adversely impact administrative cost markedly.\u00a0 Finally, without a deductible, insurance company’s exposure\u00a0to fraudulent claims would likely skyrocket.\u00a0 Without a deductible, insurers would face mounting costs that could only be offset by raising premiums.<\/p>\nToday\u2019s insurance contains a risk retention component<\/strong><\/h4>\n
\u00a0<\/strong><\/h4>\n
Access part 2 of this 2 part series which will be published on 9\/20\/18<\/a>\u00a0<\/em><\/strong><\/h4>\n
<\/a><\/a><\/p>\n","protected":false},"excerpt":{"rendered":"