Theses, Dissertations, and Capstone Projects

Year of Award

1991

Degree

Master of Business Administration (MBA)

College

College of Business & Professional Studies

Degree Program

Business

Department

Business Administration

Keywords

premiums, companies, retention, benefits

Abstract

This is a comprehensive review of risk financing techniques. The intent is to provide the reader with an understanding of risk and risk financing techniques available to organizations in the United States. In addition, it will provide an understanding of the use of captive insurance as an alternative to traditional risk financing through commercial insurance companies.

The history of insurance and other risk financing alternatives goes far beyond the context of this paper. It is enough to say that insuring or funding against the probability of financial loss to property and legal liabilities imposed on an organization are both social and economic responsibilities born by the organization and transferred to another entity that is a vehicle by which the loss can be absorbed, thus continuing the stability and growth of the organization sustaining the loss.

Determining the appropriateness of any of risk financing alternative involves the analysis of the cost/benefit relationship between insuring risk and retaining risk. More and more alternatives to traditional risk financing through commercial insurance companies are necessary for the organization that requires a stable insurance market. The captive alternative provides all of the advantages associated with the other non-traditional risk financing alternatives plus many advantages enjoyed by the traditional market.

The insurance environment in the 1990's and some favorable, recent tax rulings are creating renewed interest in captive formation. The insurance industry is cycling through a soft market which had an abundance of coverage at inexpensive prices. The market is now firming. Disappearing coverages are creating a void and a higher cost of doing business with the commercial insurance market. The captive insurance alternative is an important alternative to risk financing. The advantages of using the captive as a risk financing technique makes the study of this mechanism, as an alternative, a desirable consideration.

Document Type

Restricted Thesis

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