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Foundations of Casualty Actuarial Science

Q10. What is Risk Financing? Discuss its various
techniques.

Q11. Explain the concept of pooling.
Ans. Risk financing is any technique used to obtain funds to

restore losses that strike an individual or entity. These
techniques fall under these categories :
(i) Risk retention - The normal state of events for an

individual or entity is to retain its exposures to possible
losses. This is called risk retention. Sometimes, it
also called self insurance. Risk retention can be
passive or active.

Passive risk retention refers to exposures to possible
loss that are retained because they have not been
identified or have been forgotten. An entity owing
many buildings might forget to purchase property
insurance for one of them. Active risk retention is
the preferred state. In active risk retention, the
exposures to possible loss have been carefully
evaluated, and a conscious decision has been made
to retain them.

This may be due to some of the advantages of risk

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