Examkin

Question

Difficulty: MediumMethods of Handling Risk

A commercial drone videography company decides to completely stop offering over-water flight services due to the severe risk of unrecoverable drone loss. Additionally, instead of filing claims for minor damages on their commercial aviation policy, the company establishes a dedicated cash reserve to pay for routine propeller replacements out of pocket. Which two methods of handling risk has the company implemented in this scenario?

  1. Avoidance and RetentionAnswer
  2. B
    Reduction and Transfer
  3. C
    Avoidance and Transfer
  4. D
    Sharing and Reduction

Answer

The correct answer is Avoidance and Retention.
The correct answer accurately identifies that completely ceasing a specific hazardous activity (over-water flights) is risk avoidance. Furthermore, intentionally paying for minor damages from a dedicated cash reserve rather than relying on insurance is an example of active risk retention.

Step-by-Step Solution

1
Analyze the first action taken by the company: stopping over-water flight services.
This completely eliminates the exposure to the specific hazard of losing a drone in the water.
Identifying that the risk was eliminated rather than just minimized points directly to the 'Avoidance' method of risk handling.
2
Analyze the second action taken by the company: establishing a cash reserve for minor damages.
The company is choosing to absorb the financial impact of small losses rather than passing them to an insurance company.
Understanding who bears the financial burden distinguishes 'Retention' (self-insuring/paying out of pocket) from 'Transfer' (buying insurance).

Key Concept

Methods of Handling Risk (STARR: Sharing, Transfer, Avoidance, Reduction, Retention)
Rate this question

Topics

Methods of Handling Risk

More questions from this topic