Alternative Method of Mitigating Risk on Medium and Large Corporations

High operating costs and complexity of risks are impacting negatively on corporations’ profitability
despite practicing corporate governance. Corporate governance requires that the management
develops frameworks, structures, and guidance to manage enterprise risk. The traditional methods of
mitigating risk have relied heavily on insurance as the only mean of protecting enterprise against
risks. The traditional methods are now becoming too expensive for corporations and are not able to
cover all risk exposures. This problem forms the basis of the research problem in this study. The
purpose and objective of this study are to establish alternative methods of mitigating risks in
corporations and develop models for computing benefits accruing to the corporations as a result of
using the new alternative method. As such, this study identifies financial assets, sinking fund,
ploughing back of premiums as possible investments where forgone insurance premiums can be
invested and develop a model for computing earnings resulting from such investments. The study
applied Actuarial Theory, Financial Theory of Risk Transfer, Modigliani and Miller Theory and Agency
Theory, and used both primary and secondary data collected from National Transport and Safety
Authority, Kenya and Registrar of Motor vehicles, Kenya target populations, namely number of
countries in Europe and North America and the number of insurance companies in Kenya. The study
was of significance to the business communities, scholars and researchers, the government and the
general public by: (1) providing a better understanding for designing and formulating risk management
policy in their organizations, (2) providing mechanism for investing the forgone insurance premium
and (3) strengthening knowledge and further research in the area of mitigation. In summary, this study
is tenable and a better alternative to ever-increasing insurance premiums.