Examkin

Question

Difficulty: EasyMethods of Handling Risk

A retail clothing store owner is reviewing strategies to manage potential financial losses. Which of the following specific actions correctly demonstrate the risk handling method known as Retention? (Select all that apply)

  1. Choosing a commercial property policy that includes a $2,500 deductible for each covered claimAnswer
  2. Establishing a designated savings account to self-fund minor inventory spoilage incidentsAnswer
  3. C
    Signing a contract that shifts the liability for parking lot maintenance to an independent vendor
  4. D
    Installing an upgraded security camera system to deter shoplifting and minimize theft losses

Answer

Choosing a policy with a deductible and establishing a savings account to self-fund minor incidents.
Retention occurs when a person or business assumes the financial responsibility for a loss. A deductible represents a portion of the risk retained by the insured before the insurer pays. Similarly, self-funding minor incidents through a dedicated savings account is a classic example of active, planned risk retention (self-insurance).

Step-by-Step Solution

1
Define the concept of risk retention.
Retention means assuming the financial consequences of a loss, either entirely or partially.
Understanding the definition is required to identify the correct actions from the choices provided.
2
Evaluate each action against the STARR risk handling methods.
The deductible and the self-funding account both involve keeping the financial risk. The contract shifts the risk (Transfer), and the cameras lower the risk (Reduction).
This isolates the two actions that specifically represent retention rather than other mitigation tactics.

Key Concept

Risk Retention (STARR Methods)
Rate this question

Topics

Methods of Handling Risk

More questions from this topic