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Difficulty: MediumMethods of Handling Risk

Dr. Chen operates a general dental clinic and is considering adding a new, highly complex oral surgery service to increase her practice's revenue. After evaluating the high cost of the required specialized malpractice insurance and the potential for severe patient lawsuits, she decides to permanently discard the plan and will not offer the oral surgery under any circumstances. Which of the following methods of handling risk has Dr. Chen utilized regarding this specific liability?

  1. Risk avoidance, because she chose not to engage in the activity that creates the liability exposure.Answer
  2. B
    Risk reduction, because she took deliberate steps to minimize the overall hazards of her dental practice.
  3. C
    Risk retention, because she is choosing to self-insure her current operations without expanding them.
  4. D
    Risk transfer, because she shifted the operational liability away from her clinic by rejecting the service.

Answer

Risk avoidance, because she chose not to engage in the activity that creates the liability exposure.
The correct answer identifies risk avoidance, which involves eliminating a risk completely by refusing to engage in the activity that creates the exposure. By discarding the plan and choosing not to offer the surgery, Dr. Chen completely avoids the specific malpractice liability associated with that procedure.

Step-by-Step Solution

1
Analyze the scenario to identify the source of the risk.
The risk stems from the potential malpractice liability of offering a new, complex oral surgery service.
Understanding the specific exposure is necessary to determine how it is being handled.
2
Evaluate Dr. Chen's final action regarding the risk.
She decided to completely abandon the plan and not offer the service at all.
The action taken directly corresponds to one of the STARR methods (Sharing, Transfer, Avoidance, Reduction, Retention).
3
Match the action to the correct risk handling method.
Eliminating an exposure entirely by refusing to participate in the activity defines risk avoidance.
Unlike reduction (minimizing risk) or transfer (buying insurance), avoidance means a 0% chance of loss from that specific activity.

Key Concept

Methods of Handling Risk: Avoidance
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Topics

Methods of Handling Risk

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