Principles of Risk and Insurance - Responding to Risks
RESPONSE TO RISK
A risk may be avoided if the individual refuses to accept risk by not engaging in an action that creates a risk (removal of the peril).
Consider the following risk avoidance instances:
- Taking the bus rather than buying a car
- Renting a home rather than buying it
- Not buying an office building without a sprinkler system
Risk diversification, also known as risk sharing, is a method of reducing your total exposure to risk by sharing the responsibility with another party.
Consider the following risk diversification strategies:
- Forming a limited partnership for your business
- Hedging contracts
- Health insurance with deductibles and co-payments
Risk reduction is the process of diminishing risk through the implementation of loss prevention methods or implementing safety features or improvements.
Consider the following risk reduction techniques:
- Mounting smoke detectors in your building
- Installing hurricane shutters on your home
- Put a burglary system on your vehicle
Risk retention is the act of accepting risk and confronting it if and when it occurs. In this process, no action is taken to avoid, transfer, or reduce risk.
Consider the following risk retention actions:
- Coinsurance in various insurance policies
- Utilizing deductibles in insurance contracts
Risk transfer is the practice of shifting risk responsibility either through an individual or an insurance contract. The most effective way to handle risk is to transfer it so that the loss is consumed by another party.
Consider the following risk transfer solutions:
- Purchasing an insurance policy
- Obtaining high protection limits on your auto policy
- Reassign the risk to another individual
Of the following methods of handling risk, which technique best describes "wearing seat belts" when driving your motor vehicle?
A. Risk Avoidance
B. Risk Transfer
C. Risk Retention
D. Risk Reduction
Risk reduction is the practice of reducing or eliminating risk by implementing safety features, such as using a seat belt.
For risks that involve high loss severity and low loss frequency, the most suitable procedure is?
A. Risk Sharing
B. Risk Reduction
C. Risk Avoidance
D. Risk Transfer
Risk Transfer is the best answer. Transferring risk to an insurance policy is the most effective method of preparing for high loss severity and low loss frequency. High loss and high frequency risks should be avoided. The Legal Aspects of Insurance
ProfessionalsA company must identify the type of risks it is taking, as well as measure, report on, and set systems in place to manage and limit, those risks.
EntrepreneurshipImplementing risk management strategies can save an entire organization from failure. Is yours up to snuff?
RetirementLet's take a look at the two basic types of risk: Systematic Risk - Systematic risk influences a large number of assets. A significant political event, for example, could affect several of the ...
EntrepreneurshipThere are a lot of risks associated with running a business, but there are an equal number of ways to prepare for and manage them.
InsuranceRisk management is especially important in healthcare because human lives might be on the line. Here are some strategies to map out a plan.
Bonds & Fixed IncomeAn interest rate hike by the Fed, which will happen either during their June or September meeting, could impact your fixed income investments.
EconomicsDeveloping markets can be attractive additions to many investor's portfolios, but carry additional risks that must be considered.
EntrepreneurshipRisk management is a form of insurance in itself for small business owners. Here are seven steps to implement a plan.
InvestingSystematic risk, also known as volatility, non-diversifiable risk or market risk, is the risk everyone assumes when investing in a market. Think of it as the overall, aggregate risk that comes ...
TermOperational risk is the risk that a firm will fail or lose money due to failed internal processes.
A risk management technique in which a company facing risks decides ...
A collection of risks associated with investing in a foreign ...
The portion of the insurance market that allows companies to ...
A risk management method used in the business or investment field. ...
An insurance policy that covers exposures to several different ...
The underlying tenet behind insurance transactions. The purpose ...
Learn what risk avoidance and risk reduction are, what the differences between the two are, and some techniques investors ... Read Answer >>
Learn about market risk and the four primary sources of market risk including equity, interest rate, foreign exchange and ... Read Answer >>
Learn what risks businesses can be exposed to during any phase of the business life cycle, and how these risk can be identified ... Read Answer >>
Learn about market risk and country risk, some examples of each and the main difference between these two types of risks. Read Answer >>
Learn why risking capital can be risky business, how much risk can you afford and how to determine the right amount of risk ... Read Answer >>
Examine four major categories of financial risk for a business that represent potential problems that a company may have ... Read Answer >>