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Question

Difficulty: EasyMethods of Handling Risk

A group of independent delivery drivers forms an association. To manage their exposure to vehicle accidents, they agree to pool their funds. If any driver in the group is involved in an accident, the repair costs are paid out of this collective fund rather than by the individual driver alone. Which method of handling risk does this arrangement primarily represent?

  1. Risk sharingAnswer
  2. B
    Risk transfer
  3. C
    Risk avoidance
  4. D
    Risk reduction

Answer

Risk sharing
Risk sharing occurs when a group of individuals or businesses with the same or similar exposure to loss interact to distribute the financial burden of those losses. By pooling their funds to collectively pay for accidents, the delivery drivers are engaging in risk sharing.

Step-by-Step Solution

1
Analyze the action taken by the drivers in the scenario.
The drivers are pooling their funds to pay for covered accidents that occur within the group.
Identifying the specific financial mechanism used helps categorize the risk handling method.
2
Match the action to the five STARR methods of handling risk.
Pooling funds among individuals with similar exposures fits the definition of risk sharing.
This confirms the correct classification based on standard insurance principles.

Key Concept

Risk Sharing
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Topics

Methods of Handling Risk

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