Risk management insurance is one kind of the insurance. Many companies and organizations purchase this insurance to put the limit to the potential damages in their activities or their business. Generally, such damaged can be infrastructure-based or economic. Those damages can be identified internally or externally by the organization.
Certain risks are assessed by firms by taking few steps and generally such risks associate with activities of business while running the business. Then insurance company can try to lower or remove such risks. Assets are identified by the organizations and they determine what is most critical to them to continue operations. Threats and risk events which may occur in future can be assumed by the organizations. The cost of the risk management insurance policy depends on the risk event of the business.
Suppose if a company’s headquarter is at the place where earthquakes are often, then future damages of the building, company assets, and damage to the customers which can be caused by earthquake are determined by both firm and insurance company by an assumption. Exact figures on damage estimates is determined by them. Then a policy can be issued by the insurance company. In this way the insurance company issues the financial recovery.
An independent analysis can be conducted by insurance companies to issue the policies.
There are advantages and disadvantages of this system.
Generally, the insurance company of the risk management has a goal that is most amount of business with least amount of payouts, means such company will be stable financially in every event.