Basket Retention Policy - Explained
What is a Basket Retention Policy?
Written by Jason Gordon
Updated at July 15th, 2021
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Table of Contents
What is a Basket Retention Policy? How does a Basket Retention Policy Work? An Alternative to Basket Retention for Transferring Risk Academic Research on Basket ClauseWhat is a Basket Retention Policy?
A basket retention is an insurance policy that provides coverage for losses resulting from different types of risks. The basket retention policy costs the insurance company lesser amounts for coverage of losses from multiple risks as against when the each loss is accounted for under its policy. Reinsurance, self-insurance and some other policies have basket retention as their attributes. Under a basket retention coverage, a company's risk has a limited amount when losses are from multiple risks.
Back To: INSURANCE & RISK MANAGEMENT
How does a Basket Retention Policy Work?
A basket retention coverage is one that combines losses from multiple risks into a bundle package. This coverage is termed a pre-packaged insurance policy that limits a company's risk to a certain amount, in cases where losses emanate from different risk types. Basket retention policies are often used by companies as excess warranty insurance contract. It is used for self-insurance and as an alternative risk transfer techniques. This insurance policy (basket retention) as offered by insurers create unique coverage for losses from different risk types. For example, a company that runs tour of travel services in both land and sea and decide to be self-insured in order to be covered from losses on both land and water.
An Alternative to Basket Retention for Transferring Risk
There are many ways insurers package risks and offer them to investors in form of insurance policies. Although, basket retention policies are effective means for transferring risks, there are other evolving alternatives. Insurance companies are constantly devising new methods and policies for risk transfer. The issuance of catastrophe bonds is one of the alternative to basket retention. Another alternative is the Collateralized reinsurance that reinsurers use. This is a cluster of insurance policies that reinsurers our insurers offer to individuals or investors as a method of spreading our transferring risk. Both catastrophe bonds and collateralized reinsurance have gained much popularity overtime especially after economic glooms.
Academic Research on Basket Clause
- Foreign Exchange Risk in International Transactions, Blu, F. O., & Armeanu, D. (2002). Theoretical and Applied Economics, Academy of Economic Studies, Bucharest.
- Commission publishes blueprint for Euro legal framework, Yeowart, G. (1997). Int'l Fin. L. Rev., 16, 37.
- Business as unusual, Banks, G. (1999). See Filer, 222-59.Catastrophe insurance futures, McCullough, K. (1995). Risk Management, 42(8), 31.
- Maintenance of Value" Equal Protection" for Small Savers: Foreign Currency Accounts Versus Basket Clause Accounts, Carter, C. E. (1978). The Business Lawyer, 233-255.Are Negative Pledge Clauses in Public Debt Issues Obsolete, McDaniel, M. W. (1982). Bus. Law., 38, 867.
- What Does the Euro Mean for You, Yeowart, G. (1997). Int'l Fin. L. Rev., 16, 9.
- Price review mechanisms in long-term supply contracts-some pitfalls and how to avoid them, Standing, S., & Cooke, M. (2015). Australian Resources and Energy Law Journal, 34(1), 25.
- EMU: legal issues for business, Hornsby, S., & Felton, G. (1998). Journal of the Society of Dyers and Colourists, 114(12), 351-354.
- Transaction cost economics and contractual relations, Maher, M. E. (1997). Cambridge Journal of Economics, 21(2), 147-170.
- Law, Contract and Reputation in International Business: What Works, Walde, T. W. (2002). Bus. L. Int'l, 190.