1/E - Risk Management

Question 1

Intro to Risk Management

Answer 1

Having a plan for how to deal with possible future losses

Four Risk Management Techniques:

1. Risk Avoidance
2. Risk Reduction
3. Risk Transference
4. Risk Retention

An actuary is a professional who studies and measures risk.

• Looks at the probability of certain events occurring and then estimates the cost if those things do occur
• Determines what premiums insurers should charge for each category (or “class”) of risk

Question 2

Avoidance

Answer 2

Risk Management Technique:

1. Risk avoidance: eliminates risk by not taking an action that involves risk

Question 3

Reduction

Answer 3

Risk Management Techniques
2. Risk reduction: taking measures to reduce the risk involved in an action

Note: also called Risk Mitigation

Question 4

Transference

Answer 4

Risk Management Techniques:
3. Risk Transference: managing severe risks by transferring the risk to another party

Most common example: Insurance

Question 5

Retention

Answer 5

Risk Management Techniques

4. Risk Retention: acknowledging the risks and preparing to handle unexpected losses that may occur

Question 6

Severity vs. Frequency

Answer 6

Avoid: High Frequency and High Severity
Reduce: High Frequency and Low Severity
Transfer (insurance): Low Frequency and High Severity
Retain: Low Frequency and Low Severity