Risk controlRisk responseRisk avoidance examplerisk avoidance中文Risk acceptanceRisk reductionrisk retention中文Handling Risk - Insurance - thisMatter.com
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Risk Control. avoidance; loss control · Risk Financing. retention; noninsurance transfers; insurance ... thisMatter.com›Money›InsuranceHandlingRiskBecauseriskisthepossibilityofaloss,people,organizations,andsocietyusuallytrytominimizeormanagerisk.Riskmanagementisaformalmethodofidentifying,eliminating,ormitigatingrisksforanorganization,butcanalsobeusedbyindividuals.Riskmanagementcanbesubdividedinto2broadcategories:riskcontrol,avoidingorreducingrisk,andriskfinancing,settingenoughmoneyasidetocoverlossesortransferingtheriskto3rdparties,suchasinsurancecompanies.Withinthesecategories,thereare5majormethodsofhandlingrisk:RiskControlavoidancelosscontrolRiskFinancingretentionnoninsurancetransfersinsuranceRiskControlRiskcontrolisthebestmethodofmanagingriskandusuallytheleastexpensive.Riskcontrolinvolvesavoidingtheriskentirelyormitigatingtheriskbyloweringtheprobabilityandmagnitudeoflosses.Manyriskscannotbeavoided,butalmostallriskscanbemitigatedthroughtheuseoflosscontrol.Nonetheless,evenlossesfrommitigatedriskscanbeexpensive,sobothpeopleandbusinessesusuallytransfersomeofthatriskto3rdparties.Riskavoidanceistheeliminationofrisk.Youcanavoidtheriskofalossinthestockmarketbynotbuyingorshortingstocks;theriskofavenerealdiseasecanbeavoidedbynothavingsex,ortheriskofdivorce,bynotmarrying;theriskofhavingcartrouble,bynothavingacar.Manymanufacturersavoidlegalriskbynotmanufacturingparticularproducts.Ofcourse,notallriskscanbeavoided.Notableinthiscategoryistheriskofdeath.Butevenwhereitcanbeavoided,itisoftennotdesirable.Byavoidingrisk,youmaybeavoidingmanypleasuresoflife,orthepotentialprofitsthatresultfromtakingrisks.Abusinesscannotoperatewithouttakingsomerisk.Virtuallyanyactivityinvolvessomerisk.Generally,riskshouldbeavoidedwhenlossesarelargeandgainsaresmall.Whereavoidanceisnotpossibleordesirable,losscontrolisthenextbestthing.Losscontrol(a.k.a.riskreduction)caneitherbeeffectedthroughlossprevention,byreducingtheprobabilityofrisk,orlossreduction,byminimizingtheloss.Losspreventionrequiresidentifyingthefactorsthatincreasethelikelihoodofaloss,theneithereliminatingthefactorsorminimizingtheireffect.Forinstance,speedinganddrivingdrunkgreatlyincreaseautoaccidents.Notdrivingafterdrinkingalcoholisamethodoflosspreventionthatreducestheprobabilityofanaccident.Drivingslowerisanexampleofbothlosspreventionandlossreduction,sinceitbothreducestheprobabilityofanaccidentand,ifanaccidentdoesoccur,itreducesthemagnitudeofthelosses,sinceaccidentsatslowerspeedsgenerallycauselessdamage.Salvageoperationsmayalsoreducethecostoftheloss.Mostbusinessesactivelycontrollossesbecauseitisacost-effectivewaytopreventlossesfromaccidentsanddamagetoproperty,andgenerallybecomesmoreeffectivethelongerthebusinesshasbeenoperating,sinceitcanlearnfromitsmistakes.Businessescancontrollossesthrougheitheranengineeringapproachorbehavioralapproach.Theengineeringapproachsetsupboththebusinessenvironmentandprocedurestolowertheprobabilityoflosses.Forinstance,usingrobotstoperformhazardousprocedureseliminatestheriskofhavingpeopleperformthoseprocedures.Thebehavioralapproachrecognizesthatmanylossesareincurredbecauseofhumanerrororlackoftraining,soworkersaretrainedtofollowproceduresthatwilllowertheprobabilityoflossesorthemagnitudeofthoselosses.Monitoringtheworkerstoensurethattheyarepracticingsafetyisanothereffectivemeansoflosscontrol.RiskFinancingRiskfinancingfocusesonmethodsforpayingforlosses,whichisnecessarybecausenotalllossescanbeprevented.Riskfinancingisaccomplishedbyretainingtherisk,andforsomerisks,someormostofthecostofpotentiallossesistransferredto3rdparties,usuallyinsurancecompanies.Althoughinsuranceisamajormeansofloweringthecostoflosses,allpeopleandbusinessesretainsomerisk,evenforinsuredlosses,becausemostformsofinsurancehavedeductibles,andsomehavecopayments.Riskretention,(akaactiveretention,riskassumption),ishandlingtheunavoidableorunavoidedriskinternally,eitherbecauseinsurancecannotbepurchasedoritistooexpensivefortherisk,orbecauseitismuchmorecost-effectivetohandletheriskinternally.Usually,retainedrisksoccurwithgreaterfrequency,buthavealowerseverity.Aninsurancedeductibleisacommonexampleofriskretentiontosavemoney,sinceadeductibleisalimitedriskthatcansavemoneyoninsurancepremiumsforlargerrisks.Businessesactivelyretainmanyrisks—whatiscommonlycalledself-insurance—becauseofthecostorunavailabilityofcommercialinsurance.Passiveriskretentionisretainingriskbecausetheriskisunknownorbecausetherisktakereitherdoesnotknowtheriskorconsidersitalesserriskthanitactuallyis.Forinstance,smokingcigarettescanbeconsideredaformofpassiveriskretention,sincemanypeoplesmokewithoutknowingthemanyrisksofdisease,and,oftheriskstheydoknow,theydon'tthinkitwillhappentothem.Anotherexampleisspeeding.Manypeoplethinktheycanhandlespeed,andthat,therefore,thereisnorisk.However,thereisalwaysgreaterrisktospeeding,sinceitalwaystakeslongertostoporchangedirection,and,inacollision,higherspeedswillalwaysresultinmoredamageandahigherriskofseriousinjuryordeath,becausehigherspeedshavegreaterkineticenergythatwillbetransferredinacollisionasdamageorinjury.Sincenodrivercanpossiblyforeseeeverypossibleevent,therewillbeeventsthatwillhappenthatwillbemucheasiertohandleatslowerspeedsthanathigherspeeds.Forinstance,ifsomeonefailstostopatanintersectionjustasyouaredrivingthrough,then,atslowerspeeds,thereisobviouslyagreaterchanceofavoidingacollision,or,ifthereisacollision,therewillbelessdamageorinjurythanwouldresultfromahigherspeedcollision.Hence,speedingisaformofpassiveriskretention.Riskcanalsobemanagedbynoninsurancetransfersofrisk.The3majorformsofnoninsurancerisktransferisbycontract,hedging,and,forbusinessrisks,byincorporating.Acommonwaytotransferriskbycontractisbypurchasingthewarrantyextensionthatmanyretailerssellfortheitemsthattheysell.Thewarrantyitselftransferstheriskofmanufacturingdefectsfromthebuyertothemanufacturer.Transfersofriskthroughcontractisoftenaccomplishedorpreventedbyahold-harmlessclause,whichmaylimitliabilityforthepartytowhichtheclauseapplies.Hedgingisamethodofreducingportfolioriskorsomebusinessrisksinvolvingfuturetransactions.Thus,thepossibledeclineofastockpricecanbehedgedbybuyingaputforthestock.Abusinesscanhedgeaforeignexchangetransactionbypurchasingaforwardcontractthatguaranteestheexchangerateforafuturedate.Investorscanreducetheirliabilityriskinabusinessbyformingacorporation,anScorporation,oralimitedliabilitycompany.Thispreventstheextensionofthecompany'sliabilitiestoitsinvestors.Insuranceisanothermajormethodthatmostpeople,businesses,andotherorganizationscanusetotransferpurerisks,bypayingapremiumtoaninsurancecompanyinexchangeforapaymentofapossiblelargeloss.Byusingthelawoflargenumbers,aninsurancecompanycanestimatefairlyreliablytheamountoflossforagivennumberofcustomerswithinaspecifictime.Aninsurancecompanycanpayforlossesbecauseitpoolsandinveststhepremiumsofmanysubscriberstopaythefewwhowillhavesignificantlosses.Noteverypureriskisinsurablebyprivateinsurancecompanies.Eventswhichareunpredictableandthatcouldcauseextensivedamage,suchasearthquakes,arenotinsuredbyprivateinsurers,althoughreinsurersmaycoverthesetypesofrisksbyrelyingonstatisticalmodelstoestimatetheprobabilitiesofdisaster.Speculativerisks—riskstakeninthehopeofmakingaprofit—arealsonotinsurable,sincetheserisksaretakenvoluntarily,and,hence,arenotpurerisks.BetterInformationLowersRiskRiskisoftendefinedastheprobabilityofloss,buttherealprobabilityofaneventusuallycannotbeknown,sotheprobabilityisassessedsubjectively,wheretherisktakermustassesstheprobabilityofcertainrisksbasedontheinformationpertainingtothatrisk.Thus,thebeststrategyforavoidingorreducingriskisgatheringmoreinformation,whichcanbeusedtoavoidmorerisk,topreventunintentionalriskretention,andtolearnbetterwaysofmanagingrisk.Forinstance,businessownersshouldnotonlylearnmoreabouttheirownbusiness,buttheyshouldalsolearnabouttheindustryinwhichthebusinessoperates,andeveneconomics,toseehowtheeconomyasawholeoperates.Thisstrategywouldbetterensurebusinesssuccessratherthanfocusingonwhatabsolutelyneedstobedonetoconductbusiness.Seekingmoreinformationshouldbeacontinualprocess,sinceriskschangefrequently.So,tocontinuetheexample,itwouldbehooveabusinessownertostayabreastofdevelopmentsintheirfieldofbusinessandintheirindustry.PersonalFinanceBankruptcyChapter7Chapter13Chapter11CreditandDebtDebtCollectionInsuranceTypesofInsuranceAutoHomeownerHealthLifeRealEstateTaxesIncomeTaxesPersonalDeductionsandTaxCreditsRetirementPlansGratuitousTransferTaxesEducationalTaxBenefitsTaxationofInvestmentsBusinessTaxesWills,Estates,andTrustsWillsandEstatesTrustsInvestmentsInvestmentFundamentalsInvestmentFundsMutualFundsLimitedPartnershipsBankingBondsTypesOfBondsGovernmentSecuritiesMoneyMarketInstrumentsCorporateBondsAssetBackedSecuritiesForexFuturesOptionsStocksStockIndexesStockValuationandFinancialRatiosTechnicalAnalysisEconomicsContactMe!SearchThisSite
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