What is the difference between risk management and risk financing?
Risk management is a general term referring to the identification, quantification, and handling of all the risks to which your business is subject. Risk management includes safety programs, contractual “hold harmless” agreements, regular legal review of your internal procedures, and other non-financial methods of addressing identified risks. Risk financing is a process that identifies the most efficient way to finance an identified risk. In many cases where insurance is readily available through the conventional marketplace at affordable prices, the answer is to buy conventional insurance. In cases where insurance is not readily available or not affordable, risk financing includes the analysis of other options, including self-insurance (i.e., setting up and paying into reserve liability accounts), and forming a captive insurer.
