When faced with a risk of loss that is low frequency-high severity in nature, a prudent risk manager would choose which of the following methods for handling the loss exposure?
A) self-insure
B) avoidance
C) transfer
D) mediate

Question

Quizplus · Accepted Answer

When faced with a risk of loss that is low frequency-high severity in nature, a prudent risk manager would choose to transfer the risk. Transfer means transferring the financial responsibility for the loss to another party through insurance or contractual agreements. This allows the organization to have a means to cover the high severity loss without placing the burden solely on its own resources. Self-insuring or mediating would not be practical approaches for managing this type of risk. Avoidance may be appropriate in some cases, but may not always be possible or practical, especially if the risk is inherent to the organization’s operations.

When Faced with a Risk of Loss That Is Low