Examkin

Question

Difficulty: MediumMethods of Handling Risk

An event planning company organizes large outdoor festivals. After a recent season with unpredictable weather, the management team makes two strategic decisions. First, they establish a self-funded cash reserve to directly pay for any minor wind damage to tents and signage. Second, they purchase a specialized weather cancellation policy from a commercial insurer to protect against the financial impact of a total event washout. Which two methods of handling risk are being utilized by the management team in this scenario?

  1. Risk retention and risk transferAnswer
  2. B
    Risk reduction and risk transfer
  3. C
    Risk sharing and risk transfer
  4. D
    Risk avoidance and risk retention

Answer

Risk retention and risk transfer
The correct answer accurately identifies the two risk handling methods used. Establishing a dedicated cash reserve to pay for smaller, predictable losses is risk retention. Purchasing a policy from a commercial insurer to cover catastrophic losses is risk transfer.

Step-by-Step Solution

1
Analyze the first strategic decision: establishing a self-funded cash reserve for minor wind damage.
This action involves the company assuming the financial responsibility for the loss itself.
When an entity chooses to bear the financial burden of a risk out of its own funds, it is utilizing risk retention.
2
Analyze the second strategic decision: purchasing a commercial insurance policy for total event washouts.
This action shifts the financial consequence of a specific loss to a third party (the insurer).
When the financial risk of loss is shifted to an insurance company in exchange for a premium, it is utilizing risk transfer.

Key Concept

Methods of Handling Risk (STARR)
Rate this question

Topics

Methods of Handling Risk

More questions from this topic