Page 169 - RISK Management IC86 Ebook

The Insurance Times

Ans.b) The contingency fund should be strictly adhered to. There
should not be any withdrawal or transfer of money from
the fund. It should be noted that all guidelines are followed
keeping in mind all probable and unexpected losses. The
fund transfer or withdrawal should be an absolute no-no
and several financial consultants should handle the fund
to reap in maximum financial returns.

The financing of the fund solely from the contributions
based on loss expectancies involve the risk of it proving
inadequate if in any year, the aggregate retained losses
exceed expected losses.

If a risk is insured, the impact of adverse claims
fluctuations falls on the insurer, but when a risk is
internally funded, any excess of losses over the
accumulated fund falls back on the organization, mostly
treated as charge against central reserves. Some
protection can be obtained by :
(i) Loading the periodic contributions
(ii) Establishing a fund with such a capital reserve.

The size of the reserve required to reduce a fund's
probability of ruin depend upon individual circumstances

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