Page 79 - ic92 actuarial

Foundations of Casualty Actuarial Science

Advantage of pooling is reducing the variability in
losses from what an individual entity would have
been exposed if the exposures were not pooled.

Disadvantage of pooling is that an entity being
responsible at least partly, for exposures of other
entities may not practice stringent risk control.

(ii) Contractual transfer to a non- insurer - This is a
risk financing technique which transfers only the
financial responsibility for losses , but not the legal
responsibility. This is usually done through provisions
in contracts dealing with other matters, often through
harmless clauses. For e.g, a lease in which the landlord
transfers the financial responsibility for damage that
occurs on the premises of third parties to tenants.

So, in other words the tenants hold the landlord
harmless for those losses. There are many problems
with this type of transfer. The contractual language
often is so complicated that it is difficult to understand
what is being transferred, and so fails to accomplish
what was meant to be accomplished.

Sashi Publications - www.sashipublications.com 79

Copyright@ The Insurance Times. 09883398055 / 09883380339