Question

Chapter 7: End of Chapter Exercises Homework . Due in 5 days 0 3 /13 answered Answered - Correct! No attempts left Chapter 7 Review Questions 3 Homework • Unanswered Explain how an investment in loss control may change the optimal mix between risk retention and risk transfer in a given situation. Effective loss control can reduce the frequency and severity of expected losses. This reduction may provide the opportunity for a company to retain more than it would without the loss control techniques. The company may decide to take a higher deductible or self-insure. Effective loss control can increase the frequency and severity of expected losses. This increase may provide the opportunity for a company to retain more than it would without the loss control techniques. The company may decide to take a lower deductible or self-Insure. Unanswered 1 attempt left 3 Full

Answer 1

Risk management is process of dealing with risk in order to minimize the impact of loss when it occurs .

Risk retention is a form of self insurance .An organization sets aside a reserve fund to be able to offset unexpected claims.risk retention is to accept when the loss occurs and risk transfer is shifting the responsibility of ones own losses to someone else.risk retention means accepting the reality of risk and planning for losses by setting aside enough personal resources to account for such losses.Risk retention may be the most effective means of dealing with risk as long as the possibility of a loss is relatively low or the value of the potential loss itself is small.In cases where the potential financial loss is significant or the probability of such an loss is high ,risk retention may end in economic disaster.one example of risk retention is the deductible.The deductible is the portion of loss that the policy holder will pay out of picket before the insurance coverage takes over

RISK TRANSFER :

Risk sharing was one of the first forms of insurance .In earlier history ,people joined together to help one another in times of crisis or loss.It worked well for relatively small groups but becomes more cumbersome as the group size grows.Most insurance today is a form of risk transfer .In risk transfer ,losses are actually transferred to a third party such as insurance company ,in exchange for transferring this risk.,the individual or business pays the insurance company a premium .The insurance company agrees to pay for losses that occur in exchange for much smaller payments over time.