The amount of risk you are willing to assume will directly affect how you manage your risk. If you have a high risk tolerance you are more likely to consider higher deductibles, loss-sensitive insurance programs (Retrospectively Rated Programs and Captives are examples) or possibly not even insuring some exposures at all. If you are risk adverse, you will likely insure most exposures, favor lower deductibles and stay away from loss sensitive programs. So what is your Risk Tolerance?
We have created the attached checklist to help you figure this out. Each question is ranked 1 to 4. The higher the number the more you agree with the questions. Your total score will provide insights in to the level of risk acceptance or avoidance that makes sense for your company.
Risk Tolerance Scale (cumulative points)
- 12-24: Low-seeks to avoid risk/traditional or guaranteed cost insurance programs with moderate deductibles
- 25-36: Medium-will seek higher deductibles and may be willing to consider some type of retrospective rating plan or other loss sensitive alternative
- 37-42: High-willing to consider high deductible programs and loss sensitive programs with some form of stop loss. Might consider a Shared Captive type arrangement
- 43-48: Risk Taker-will consider high deductible programs with or without a stop loss. Captives and other loss sensitive options will be strongly considered.
Understanding your Risk Tolerance will help you tailor your Risk Management Program to your companies specific needs. Follow the link below to determine your company’s Risk Tolerance.