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 to transfer risk.

The first and most familiar is the deductible. A standard feature of any insurance policy, the insured selects a deductible that 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 with a larger cash flow than your average personal insured.

Self-insurance is another mechanism for assuming risk. Larger organizations may feel that with a risk manager on staff they can control risks sufficiently so that they will not 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 using equipment, 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 receive training on safety equipment and use of machinery, and safety procedures are regularly reviewed for all. If the company has vehicles for employee use there must be a maintenance plan for the vehicles, review of employee driving records, and other measures in order to ensure safety. If the vehicles are transporting products how the products are loaded into the vehicle is a factor, as well as how long an employee may be on the road. There may also be state regulations for 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 a rest period he must take 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.

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. 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 because 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 organization may or may brief the participant in the hazards of the activity, but some activities, such as bungee jumping, are obviously and inherently dangerous. 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. As long as the organization was acting within standard safety procedures, the waiver should stand.

While corporations are well aware of their assumption of risk when the make the decision to self-insure, your average homeowner, renter or driver does not give the deductible a second thought or that it is an assumption of risk. However, advising insureds that the deductible is indeed an assumption of risk could aid in teaching them about risk and that they bear some responsibility for protecting their property.

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.