ABSTRACT
The risk reduction programme will have minimized the design risks, and the risk transfer programme will have moved part of the residual risks to third parties, but some will always remain. In risk management terms there are two types of risk suitable for retention: those that occur frequently and cause small losses and those that occur infrequently with catastrophic losses. Relevant design risk transfer by the insurance mechanism may not be available because the company cannot afford the premiums involved, or an appropriate cover may not be available for the product concerned. An insurer can avoid its liability for some losses by including a deductible in a policy. A simple deductible is a lump sum deduction from each claim. A company may ignore the residual risks and do nothing to manage them positively. Following this negative approach implies a reliance on being able to meet the cost of these liabilities out of revenue.
