The risk library
Twenty-eight articles on the cost of risk.
Each article takes one idea that costs money and works it through on a figure, defining its terms before it uses them. The figures are illustrative: they show how a mechanism works and do not price a business.
Part I · Articles 01–06
What a risk costs
Risk Cost: the £40 glass
What a risk costs per month, before anyone quotes a price.
The loading factor
Why an insurer never sells £1 of risk for £1, and what the gap pays for.
Why the average is a fair basis for a decision
The answer to the standard objection: ‘it either happens or it doesn’t’.
Putting probabilities in context
Percentages restated as the waiting time between events.
A single number is a red flag
Why an honest estimate arrives as a range, and precision is not accuracy.
Total cost of risk, not premium
Three of the four numbers that make up the cost of risk never appear on an invoice.
Part II · Articles 07–12
What the policy says
It is the clauses, not yes or no
A policy is not a yes or a no. It is six dials, and one of them takes most of the discussion.
Sums insured: rebuild cost, not market value
The number in your schedule is not what the building is worth. It is what it costs to put back.
Underinsurance and the average clause
Insure for 60% of the value and a £200,000 loss can be paid at £120,000.
Aggregate limits and per-event limits
Two policies offering ‘£5m of cover’ can behave very differently in a bad year.
The clauses that decide whether a claim gets paid
Some clauses are not advice. Miss one and the claim is not paid.
Business interruption, properly explained
The cover people buy most casually, with the two settings that are usually wrong.
Part III · Articles 13–16
Where the premium goes
Broker commissions
Your broker is usually paid by the insurer, out of your premium, as a percentage of it.
The lottery lesson
If the other side profits on average, you lose on average. That is still a reason to buy.
People buy insurance emotionally
A common pricing method in British business is ‘last year, plus a bit’.
Will you actually get paid?
Cover is a promise. How reliably and how fast it is kept is part of the price.
Part IV · Articles 17–21
What your balance sheet can absorb
When you should take the hit yourself
Insurance is for losses you cannot afford. Everything else is expensive cash-flow smoothing.
Setting your own bar
Before any model runs, someone has to say how bad a year the business must survive.
The importance of reserves
Cash on the balance sheet is already doing insurance work. It is rarely counted that way.
Can your reserves absorb a bad year?
The question is not what an average year costs. It is how often a year costs more than you have.
The internal pool
Pay the loading to yourself for the layer of risk you have decided to keep.
Part V · Articles 22–24
Reserves and return
Idle capital has a cost
A reserve in a current account is shrinking. That is a real cost of self-insuring.
Real investment returns
A 5% return in a 3% inflation year is a 2% return. Unadjusted numbers flatter everyone.
Insurance-grade investment
For money you might need at short notice, the size of the swings matters more than the size of the return.
Part VI · Articles 25–28
Reducing the risk
Reduce it instead of insuring it
Pay every year to be compensated after the fire, or once to make the fire less likely.
Team training for risk
Most losses have a person in the chain. Training is usually the cheapest lever on frequency a business owns.
Rare, ruinous events
You cannot insure everything catastrophic. Trying would drain you faster than the events.
Risks are dynamic
You are insured for the business you were when you last thought about it.
Every figure in this library is illustrative: round numbers chosen to make a mechanism visible, never a quote, a market rate, or a prediction about your business. The articles explain how the machinery works; they are not insurance, legal, actuarial, or investment advice. Where a risk is small, the article says so.