The Previous Quarter’s Risk Environment
The low loss frequency and high loss severity distributions implied the risk management strategies associated with Quadrant 1 of the Risk Management Technique Decision Matrix should be adopted, i.e. transfer financial responsibility (buy insurance) for losses and invest in loss reduction programs.
The graph to the right describes the range of likely aggregate losses your corporation can expect this coming quarter. The level of potential severity is significant with a 40 percent chance of losses of $10,000 or more. However, there’s a 50 percent chance of suffering no losses this quarter.
Theoretical Appropriate Risk Management Strategy
The table below summarizes the appropriate combination of risk management techniques for the risky environment described above.
|
|
Risk Mgmt. Markers |
Insurance |
|||
|
Risk Data |
Prevention |
Reduction |
Excel |
Deluxe |
Ultra |
Purchasing Decisions |
Yes |
No |
Yes |
No |
Yes |
No |