RMIN: ch 3 step 3

Question 1

Aviodance

Answer 1

certain loss exposure is never acquired or an existing loss exposure is abandoned

Advantage: frequency is reduced to 0

Disadvantage: may not be possible, opportunity cost, avoiding one loss exposure may create another

Question 1

Loss Prevention

Answer 1

measures that reduce frequency of a particular loss
Doesn’t eliminate risk

Ex: security systems, employee training, incident tracking

Question 2

Loss Reduction

Answer 2

measures that reduce severity of a loss
- No effect on frequency of loss

Question 3

Duplication

Answer 3

having backup copies of documents or property available

Question 4

Separation

Answer 4

divining assets exposed to loss to minimize harm form a single event

Ex: firewalls, companies w/ multiple warehouses, multiple parking lots for school bus

Question 5

Diversification

Answer 5

reduce chance of loss by spreading loss exposure across different parties (customers, suppliers), securirites(stocks, bonds), or transactions

Question 6

Risk Financing- Retention

Answer 6

Retention : firm or individual retains part or all of losses that can occur from a given risk
Retention level- dollar amount of losses that the individual/firm will retain

Active- deliberately retaining risk
Passive- unknowingly retaining risk

When should risk be retained? Difficult to insure, losses are predictable (high frequency), worst possible losses aren’t serious (low severity)

Types
Unfunded retention
Funded reserve
Deductible
Captive insurer