Review the risk management actions taken by various entities in the scenarios below. Match each specific action to the fundamental method of handling risk (STARR) it best illustrates.
- A regional private school permanently cancels its tackle football program to completely eliminate the exposure to severe head injury claims.Avoidance
- A cold-storage logistics company installs advanced temperature-monitoring sensors and backup generators to minimize the chance of inventory spoilage.Reduction
- An independent graphic designer purchases a professional liability policy to shift the financial consequences of potential copyright infringement lawsuits.Transfer
- A restaurant chain sets aside a specific portion of its monthly profits into a dedicated reserve fund to pay out-of-pocket for minor equipment breakdowns.Retention
- A group of independent physicians forms a reciprocal insurer, pooling their resources to collectively cover medical malpractice claims any member might face.Sharing
Answer
The correct mapping pairs each real-world decision with its corresponding fundamental method of handling risk (STARR). The school canceling the program represents Avoidance. The logistics company installing sensors represents Reduction. The designer buying a policy represents Transfer. The restaurant chain establishing a reserve fund represents Retention. The physicians forming a reciprocal insurer represents Sharing.
Each real-world action strictly maps to one of the five STARR methods of handling risk: Sharing (pooling risk among a group), Transfer (buying insurance or using contracts), Avoidance (eliminating the exposure entirely), Reduction (lowering the severity or frequency), and Retention (self-insuring or accepting the risk out-of-pocket).
Step-by-Step Solution
Key Concept
Methods of Handling Risk (STARR)