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Risk Transfer Transferring risk comes with several inherent costs and requirements, including: • Satisfying stakeholders • Financing claims • Managing claims • Taking risk management and risk treatment measures • Conducting survey reports Depending on the organization and its strategic objectives, the "break-even point" differs, as will the risk transfer approach it adopts. Insurance transfer is the most widely applied of all risk transfer methods. This is a mechanism the organization uses to gain relative certainty about the frequency and severity of losses it may experience within the scope of insurance by paying a premium to an insurance risk carrier. However, even the best risk transfer strategy will leave the organization with some residual risks, including those not generally insurable. Residual risks may be exclusions per policy conditions, retentions or deductibles to be borne by the insured or counterparty credit risk, such as the failure of the insurance carrier to pay claims. Risk Financing Any risk that has been accepted and has not been avoided, controlled or transferred is assumed to be retained by the organization; therefore, it must be financed. This is true for both deliberately accepted risks and for accidentally retained risk, such as residual risk after transfer. Risk financing may include the consideration of a captive insurance company or other means of retention. According to the survey, 56.1 percent of companies have achieved a reduction in risk retention costs from the risk technology tools they use. Organizations must assess their deliberately accepted risk as well as their residual risk and make provisions to finance it. Depending on risk appetites and financial abilities, risk financing can be accomplished in the following ways: • Treated as an expense • Used to access credit facilities and increase capital when needed • Used to create a contingency fund • Support for funding and operating a captive insurance company Risk technology will help identify the most suitable deductible for the organization each year and per line of business. Moreover, by proactively providing meaningful data to the insurance market, an organization will achieve savings in risk transfer costs. With the support of risk technology, an organization can achieve the right balance between self-retention and risk transfer by using loss stratification, "what if" scenarios and similar data analysis reports. Captives An additional, more formalized method for financing retained risk is the establishment of a captive insurance company. Risk technology can help calculate a clear picture of the costs associated with a captive and can illuminate other factors that contribute to decisions on how a company's risk is best financed. In a volatile market, even organizations that do not use captives may become increasingly motivated to take ownership of their business data to be more firmly in control of how they finance their risk. The only way to achieve this is by measuring and designing a sound risk financing structure. This requires the most accurate and transparent data available. Global Risk Technology Survey 2012 Aon Risk Solutions | Aon eSolutions 33