As we all know, insurance is a transfer of risk to another party. The risk is transferred most times because of financial considerations; the insured either cannot afford or does not want to take her chances that something catastrophic might happen, so she obtains an insurance policy in order to transfer the risk to a third party, the insurance carrier. There are a number of ways risk can be assumed.
The first is the deductible. A standard feature of any insurance policy, the deductible is selected by the insured and allows him to reduce his premium somewhat by agreeing to pay for part of any losses up front. When an insured selects a higher deductible, he is assuming part of the risk that he feels he can sustain on his own. Commercial insureds will use larger deductibles because they are larger operations and have more cash flow than your average personal insured.
|The self-insured
Self-insurance is another mechanism of assuming a risk. Larger organizations may believe that with a risk manager on staff they can control risks sufficiently, so they choose not to purchase insurance and use available cash flow if a loss occurs.
Having a good risk manager and procedures in place to prevent losses is critical. Proper fire detection and suppression equipment, personal protective equipment for employees who use various types of tools or machinery, safety guards on machines and known procedures for use are all important ways an organization can avoid and lessen risk. The risk manager may conduct regular safety sessions or have others conduct safety sessions. New employees must be briefed on safety equipment and use of machinery, and safety procedures must be enforced.
If the company has vehicles for employees to use, there must be a maintenance plan for the vehicles, review of employee driving records, and other measures to ensure safety. If the vehicles transport products, how the products are loaded into the vehicle is a factor as well as how long an employee is allowed to be on the road.
There may also be state regulations for certain types of organizations that the company must abide by. Long-haul trucking has standards for how long a driver can be on the road and how long of a rest period he must be allowed in order to comply with state or federal regulations.
Some risks may be too difficult for a company to self-insure, but those companies can use larger deductibles if they are trying to reduce premium costs.
(Photo: Shutterstock)
|Assumption of risk waivers
Another form of assumption of risk is the use of a waiver or hold harmless agreement. This is often used when individuals are engaging in behavior that could result in injury through no fault of the provider. Exercise classes such as aerobics or Zumba, recreational activities such as parasailing, skydiving, bungee jumping and other activities can cause injuries.
In many instances the organization providing the activity will ask participants to sign a waiver. The basic waiver lists the activity the individual is going to participate in, and states that the individual, his heirs, executors, administrators, assigns or personal representatives knowingly and voluntarily enter into the waiver agreement.
The agreement waives all rights, claims, or causes of action of any kind arising out of participation in the activity the individual may have against the organization. The waiver then states that the organization, its affiliates, managers, members, agents, attorneys, staff, volunteers, heirs, representatives, predecessors, successors and assigns are released from liability.
|Release of liability
The release is for any physical or psychological injury, including but not limited to illness, paralysis, death, damages, economical or emotional loss that the participant may suffer as a result of participating in the activity. Most forms include a statement that the individual is participating voluntarily in the activity, that the individual understands the potential risks of the activity, and that he is assuming all risks, known and unknown, in the activity.
The form also states that if the individual needs medical care or treatment that he will be responsible for payment for such services, and if he causes any damage to the equipment or facilities, or engages in reckless or negligent behavior that the individual will agree to be held liable for such actions.
For example, if the individual has gone zip lining and the line breaks and the individual is injured, he cannot make a claim against the zip line company if he was required to sign a waiver or hold harmless agreement before participating in the activity. Some activities are dangerous enough that even with protective equipment and training, accidents and injuries are still possible and beyond the control of those operating the activity.
Christine G. Barlow, CPCU, is managing editor with FC&S, the premier resource for insurance coverage analysis. She has an extensive background in insurance underwriting. She may be reached at [email protected]. Additional information about FC&S Online is available at www.NationalUnderwriter.com.
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