Question

5. a. Explain the meaning of risk control b. Explain the following risk-control techniques. 1. Avoidance 2. Loss prevention 3. Loss reduction 6. a. Explain the meaning of risk financing. b. Explain the following risk-financing techniques. 1. Retention 2. Noninsurance transfers 3. Insurance 7. What conditions should be fulfilled before retention is used in a risk management program? 8. a. What is a captive insurer? b. Explain the advantages of a captive insurer in a risk management program.

Answer 1

5 a) Meaning of risk control

                Risk control is technique used by the firm to identify potential risk and losses and take measures to prevent the risk. Risk control assist companies in preventing and reducing the losses from potential risks.

b)

1. Avoidance :-

This technique involves complete elimination of threat. In this technique the risk is avoided completely. If the risk is avoided successfully then there is zero percent chance that company will face the loss.

2. Loss prevention:-

As the name suggest the risk is not completely avoided instead the measures are taken to reduce the loss from such risk. In this technique the risk is accepted but the measures are taken to minimise the loss. For example installing CCTV cameras in the warehoused to avoid loss from theft.

3.Loss reduction:-

In this technique not only the risk is accepted but also accepts that loss might occur due to occurrence of risk. For eg, fire sprinklers installed to reduce the loss that might occur as a result of fire.

6. a) Risk financing

It is technique in which it is determine that how the company will finance the loss arising from the risk in most effective way. The aim here is here to identify the risk , determining the ways to finance and monitor.

b)

1. Retention

It is a technique in which risks are handled internally as insuring the risk may be too expensive. These risks occurs with greater frequency but loss value is not severe.

2. Non insurance transfer

In this technique the risk is transferred by method like hedge, contract etc other than insurance. For eg. Extending the warranty is example of risk financing through contract.

3. Insurance

In this method certain amount of premium is paid to transfer the risk each year. The insurance pay for the losses as it pools the money from many subscribers and pay for losses for few companies.