Role, scope and operation of a captive insurance company in large technology-based multinationals: A case comparison
The boom of the so-called captive (re-) insurers which has taken place over the recent years is linked directly to the need to respond to the demands of firms for more advanced and sophisticated risk financing instruments which help them to become more efficient and effective in meeting their goals. The real needs and possibilities which each firm has for the utilization of this instrument must be specifically evaluated within the firm's global strategy. When dealing with the decision process leading to the establishment of an insurance captive, it is important to consider experiences and not models, given that these latter are not easily or automatically transferable to the reality of the firm, which is conditioned to an economic, political and legal environment which will not be exactly the same for any two firms. For this reason, a comparison is made of the experiences of two large technology-based multinationals in the establishment of a captive company, including differences in the role assigned to t...
Cost Effectiveness of Risk Management Practices
Despite the increasing importance of risk management in a successful business organization, virtually no research has been undertaken to evaluate the effectiveness of various risk management practices. Through analysis of data obtained from a survey of risk management professionals, such an evaluation has been made and is reported here. Results include the expected effects of lower costs associated with higher levels of retention, increased size, and less risky industries. The relationship of higher costs with the use of a captive, and the ineffectiveness of centralization or use of analytical tools were unexpected.
Risk Aversion, Insurance Costs and Optimal Property-Liability Coverages
The standard mean-variance portfolio model can be modified to show how individuals select deductibles and face amounts of coverage. Optimal insurance decisions balance the portfolio holder's desire for insurance protection against the cost of insurance. This same conclusion has been derived by insurance economists who considered insurance and insurable risks in isolation from other assets. However, the broader portfolio setting allows the portfolio holder's behavior towards other risky assets to provide an objective measure of risk tolerance for tile insurance transaction. This setting extends many conclusions from traditional insurance economics into modern portfolio theory. The mean-variance approach also leads to specific predictions about behavior by individuals towards deductibles and amounts of coverage.