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Question

Difficulty: EasyMethods of Handling Risk

A homeowner lives in a region known for severe hailstorms. To better protect their property, they choose to replace their standard roof with specially designed, impact-resistant roofing materials. Which method of handling risk does this action represent?

  1. A
    Risk transfer
  2. B
    Risk avoidance
  3. Risk reductionAnswer
  4. D
    Risk retention

Answer

Risk reduction
Risk reduction involves taking actions to lower the frequency or severity of a loss. By installing impact-resistant roofing, the homeowner is directly acting to minimize the physical damage that a hailstorm would cause to the property.

Step-by-Step Solution

1
Identify the primary action being taken by the individual in the scenario.
The homeowner is upgrading to impact-resistant roofing materials.
Isolating the specific action is necessary to accurately categorize the risk management strategy.
2
Evaluate how this action affects the exposure to the hail risk.
The action does not stop hail from falling (avoidance) or shift the cost of a ruined roof to an insurance company (transfer). Instead, it minimizes how much physical damage the hail can cause.
Comparing the action's effect against the definitions of the STARR methods determines the correct category.

Key Concept

Risk Reduction
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Topics

Methods of Handling Risk

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