The Frederiksen Curve

is a conceptual device to help in understanding the trade-offs between fixed costs and a loss sensitive Risk Management Program and management's propensity to assume risk.

The ‘Frederiksen Curve’ is an only slightly tongue-in-cheek analytical frame which expresses the inherent tradeoffs in considering fixed cost versus loss sensitive risk management/insurance programs.

The success of risk management programs is heavily and often unconsciously influenced by management's propensity to assume risk. The objective is to manage risk costs in a way which assures that you are devoting equal or less revenues to these costs than your competitors are, which would in turn mean that products or services can be priced more competitively or that the shareholders can be rewarded with higher profits.

Risk costs are defined as the sum of insurance premiums, retained losses, and internal risk management costs. The particular average risk cost for your industry group is available from an annual risk cost survey.