Marcus recently launched a cybersecurity consulting firm. He invested $100,000 of his personal savings into the venture, fully aware that the business might become highly profitable or fail completely. For his operations, he purchased a commercial office building. Despite storing valuable equipment on site, Marcus consistently leaves the rear doors unlocked overnight because he assumes his commercial property policy will simply pay to replace any stolen items.
Based on fundamental risk management principles, which of the following accurately categorizes the components of this situation?
- The investment in the business is a speculative risk, and leaving the doors unlocked due to reliance on insurance constitutes a morale hazard.Answer
- BThe investment in the business is a pure risk, and leaving the doors unlocked due to reliance on insurance constitutes a moral hazard.
- CThe potential for theft is a physical hazard, and the unlocked door is the actual peril that directly causes a loss.
- DThe investment in the business is a speculative risk, and leaving the doors unlocked due to reliance on insurance constitutes a physical hazard.
Answer
The investment in the business is a speculative risk, and leaving the doors unlocked due to reliance on insurance constitutes a morale hazard.
The correct classification recognizes that a business investment carries the possibility of financial gain, making it a speculative risk. Furthermore, Marcus's careless attitude of leaving the doors unlocked specifically because he relies on his insurance policy perfectly defines a morale hazard.
Step-by-Step Solution
Key Concept
Definition and Types of Risk