Methods of handling risk
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This document discusses various methods for handling risks: 1) Loss control methods seek to reduce the frequency and severity of losses through prevention and reduction techniques. 2) Loss financing methods obtain funds to pay for losses, such as retaining risks, self-insuring, purchasing insurance, or hedging against losses. 3) Internal risk reduction methods involve diversifying business activities to reduce risk exposure or investing in information to better forecast potential losses.
Methods of handling risk
- 1. Risk Handling Methods Presented By Mohankrishna B Pranavkumar Jain
- 2. Introduction • Vital phase of risk management process • Based on the loss exposure analysis, decision is made about the way to handle the risk • Trade off between cost of risk handling and cost of risk is done Let’s see the ways in which risk can be handled…..
- 3. Risk Management Methods Loss Control Reduced Level of Risky Activity Increased Precaution Loss Financing Retention and Self-Insurance Insurance Hedging Other Contractual Risk Transfers Internal Risk Reduction Diversification Investment in information
- 4. Loss Control • Actions that reduce the expected cost of losses by reducing the frequency of losses and / or the severity of losses that occur • Sometimes known as risk control • Frequency of losses- loss prevention • Severity of losses- loss reduction
- 5. Loss Financing • Methods used to obtain funds to pay for or offset losses that occur • Retention: A business or individual retains the obligations to pay for part or all of the losses • Self- Insurance: When coupled with a formal plan to fund losses for medium to large businesses
- 6. Loss Financing • Insurance: a contract facilitating transfer of part/full risk to another party capable of bearing the risk • Hedging: used to offset losses that can occur • Other contractual risk transfers: allow businesses to transfer risk to another party
- 7. Internal Risk Reduction • Businesses can reduce risk internally • Diversification: reduce risk by diversifying their activities • Investment in information: to obtain superior forecasts of expected losses