Principles of insurance
Who gets the money in life insurance when they die
*Beneficiaries (Not the insured)
Techniques for managing risks 1)Risk control refers to techniques that reduce the frequency or severity of losses
-Avoidance -Loss prevention (activities to reduce the frequency of losses) -Loss reduction (reduce the severity of losses) *Sprinklers help stop fires from spreading *Tornado sirens for communities
Insurance vs Hedging
-Both risk is transferred by a contract -Insurance involves the transfer of pure risk while hedging is typically speculative risks also insurance can reduce objective risk while hedging is normally a form of risk transfer
Adverse selection can be controlled by
-Carefully underwriting (selection and classification) -Policy provisions (suicide clause in life insurance- commit suicide after 2 years then pay out)
Social cost of insurance
-Cost of doing business *Expense loading -Fradulent claims -Inflated claims
Objective probability can be determined by
-Deductive reasoning -inductive reasoning
Benefits of risk management
-Enables firm to attain its pre-loss and post-loss objectives more easily -Risk management program can reduce a firm's cost of risk -Reduction in pure loss exposures -Direct and indirect losses are reduced which benefits society
Advantages of retention
-Encourages loss prevention *Because you're the one paying for it if a loss occurs -Increases cash flow (Not purchasing insurance on that loss-premium) -Save on loss costs
What are the perils in the following examples: -Your house burns because of a fire -Your car is damaged in an accident with another car
-Fire -The collision *Other things include lighting, hail, tornados, burglary, etc
Underwriting cycle
-Hard markets -Soft markets
**Most important Risk management process
-Identify potential losses -Measure and analyze the loss exposures -Select the appropriate combination of techniques for treating the loss exposures -Implement and monitor the risk management program
Burdens of risk on society:
-In the absence of insurance, how would someone pay for losses -Risk of a liability lawsuit may discourage innovation, depriving society of certain goods and services -Risk causes worry and fear (mental unrest)
Insurance vs Gambling
-Insurance is always socially productive while gambling is not *For insurance both parties have a common interest in the prevention of a loss *While gambling the winner's gain comes at the expense of the loser (speculative risk)
What are the six characteristics of insurable risks
-Large number of exposure units -Loss must be accidental and unintentional -Loss must be determinable and measurable -Loss should not be catastrophic (allow pooling technique; reinsurance) -Chance of loss must be calculable (calculate average frequency of future loss) -Premium must be economically feasible (so people can afford to purchase the policy) *Based on these requirements, most personal, property, and liability risks can be insured while market, financial, production, and political risks are hard to insure
What is a deductible used for
-Lowers your premium *Because you are not buying as much coverage
What are some examples of loss exposure
-Manufacturing plants that may be damaged by an earthquake or flood -Defective products that may result in lawsuits -Possible theft of company property because of inadequate security -Potential injury to employees because of unsafe working conditions
How are social insurance programs eligibility and benefit rights prescribed
By statute
Combines into a single unified treatment program all major risks faced by the firm
Enterprise risk
______ encompasses all major risks faced by a business firm (pure, speculative, strategic, operational, financial, etc. risks)
Enterprise risk
**ON test The amount needed to pay all expenses, including commissions, general administrative expenses, state premium taxes, acquisition expenses, and all allowances for contingencies and profit
Expense loading
______ must be added to the pure premium to cover the expenses incurred by insurance companies in their daily operations
Expense loading
As the number of exposure units increases, the more closely the actual loss experience will approach the expected loss experience
Law of large numbers
Risk reduction is based on _______
Law of large numbers
Characteristics of the legal system or regulatory environment that increases the frequency or severity of loss such as large jury verdicts, dry county laws, regulatory changes by state insurance departments
Legal hazard
Covers the insured's legal liability arising our of property damage or bodily injury to others
Liability insurance
Involve the possibility of being held legally liable for bodily injury or property damage to someone else such as sexual harassment, pollution, defective products
Liability risks (most important when getting insurance for a company)
Pays death benefits to beneficiaries when the insured dies
Life insurance
A plant that may be damaged by an earthquake or an automobile that may be damaged in a collision
Loss exposure
Defective products that may result in a law suit and potential injury from unsafe working conditions are examples of
Loss exposure
Any situation or circumstance in which a loss is possible regardless of whether a loss occurs
Loss exposure *Pharmaceutical companies, defective products
Refers to the probable number of losses that may occur during some time period
Loss frequency
If a firm has to shut down fir several months because of physical damage loss occurs the firm would lose business income. This is an example of a ___________
Loss of business income (commercial risk)
-Motorists that take a safe-driving course and drive defensively to prevent auto accidents -Individuals exercise, control their weight, and eat healthy diets to prevent heart attacks -Having strict security measures at airports and aboard flights to reduce terrorism are examples of
Loss prevention
Aims at reducing the probability of loss so the frequency is then reduced
Loss prevention
High loss frequency and low loss severity
Loss prevention and retention
-A department store that installs a sprinkler system so that a fire will be extinguished -A community warning system reduces the numbers of injuries and deaths from an approaching tornado are examples of
Loss reduction
Reducing the severity of a loss after it occurs
Loss reduction
Refers to the probably size of the losses that may occur
Loss severity
Which is more important: Loss frequency or loss severity
Loss severity
______ is a policy specially tailored for the firm
Manuscript policy
Who are the insured
People who purchase insurance
The actual cause of a loss
Peril
Coverages that insure the real estate and personal property of individuals and families or provide protection against legal liability
Personal lines *Conversations with the general public
Risks that directly affect an individual or family. They involve the possibility of a loss or reduction of income, extra expenses or depletion of financial assets such as premature death of family head, Insufficient income during retirement, etc
Personal risk
The identification of pure risks faced by an individual or family, and to the selection of the most appropriate technique for treating such risks
Personal risk management
Protection against a catastrophic lawsuit or judgement
Personal umbrella liability insurance
A large corporation self insures or funds part or all of the group health insurance benefits paid to employees
Self insurance
A special form of planned retention by which part or all of a given loss exposure is retained by the firm
Self insurance
Premiums paid to a __________ captive are generally not income-tax deductible while _______ are usually income-tax deductible
Single parent (pure) ; group
Financed entirely or in large part by contributions from employers and or employees
Social insurance programs
Social security, unemployment, workers compensation, and disability are examples of
Social insurance programs
A situation in which either profit or loss is possible such as gambling, investments, etc. (ways in which you can make money off of it)
Speculative risk
10,000 houses are insured with 1% coverage. Some years as few as 90 houses are burned and others as many as 110 are burned. -What is the variation risk -What is the objective risk
Square root of 10,000 = 100 So 100-90 = 10, and 110-100 = 10 1)So the variation risk is 10 2)Objective risk is 10/100 =10%
A firm enters a new line of business and the line may be unprofitable. This is an example of a ________ risk
Strategic
The uncertainty regarding the firm's financial goals and objectives
Strategic risk
A person picks the same lottery numbers each time for powerball thinking he has a better chance at winning rather than losing
Subjective probability
A person who buys a lottery ticket on their birthday because they believe its their lucky day and over-estimates the small chance of winning is an example of
Subjective probability
The individuals personal estimate of the chance of loss
Subjective probability
Assume that a drover with several convictions for drunk driving is drinking heavily in a neighborhood bar and foolishly attempts to drive home. The driver may be uncertain whether he will arrive home safely without being arrested by the police for drunk driving. This is an example of __________ risk
Subjective risk
Uncertainty based on a person's mental condition or state of mind
Subjective risk
Assume that the chance of loss is 3% for two different fleets of trucks. Explain how it is possible that objective risk for both fleets can be different even though the chance of loss is identical
The variation loss may be quite different
Low loss frequency and high loss severity
Transfer
a)City bus corporation...
a) -Identify major steps - - -Implement and monitor b) -Liability (anyone on buss or anyone hit) -Propert loss on bus -Loss prevention services (driving courses) -Insurance (collision and liability insurance) -Loss of business income -Workers compensation -Disability
High subjective risk often results in
conservative and prudent behavior
The law of large numbers can be applied more easily to _______ than ______
pure risk ; speculative risk
In an excess insurance policy, the insurer (insurance company) pays only if
the actual loss exceeds the amount a firm has decided to retain
Identify loss exposures Delbert williams is the owner and operator of a diner. Last month, del's meat supplier recalled some hamburger for fear of E. Coli contamination. One of Del's cooks was recently injured in a kitchen fire and a waitress is complaining about pain in her elbow from carrying serving trays. Del noticed two weeks ago that there was 60 dollars missing from the cash register, and this week another 80. Del's has an excellent take-out business, and the diner is considering providing a delivery to a limited area using a vehicle owned by the diner. Del's bookkeeper suggested that delbert should establish a risk management program to address the many loss exposures.
-Meat -Liability exposure (people suing for bad meat) -Loss of revenue due to meat -Fined for serving bad meat -Safety at workplace -Workers comp -Bad work environments -Employee theft -Wrongful termination possibly -liability from workers using vehicle -Insurance rates go up due to more liability -Operations risk from placing orders over the phone( credit card fraud)
What are the three risks when dealing with liability risks
-No maximum set amount you can be sued for -A lien can be placed on your income and financial assets until payed in full -Legal defense amounts can be enormous
What is the maximum upper limit with respect to a liability loss
-None. You can be sued for any amount
Andrew owns a gun shop in a high-crime area. The store does not have a camera surveillance system. The high cost of burglary and theft insurance has substantially reduced his profits. A risk management consultant points out that several methods other than insurance can be used to handle the burglary and theft exposure. Identify and explain two non insurance methods that could be used to deal with the burglary and theft exposure
-Not Practical: avoidance (if you don't want to be robbed you would completely have to go out of business) - Loss prevention: Alarm systems, relocating, security guards, etc. -Retention: Puts money aside to pay for the first x amount stollen then insurance pays for the rest
What are the two private insurance coverages
-Personal lines -Commercial lines
What are the 4 different hazards
-Physical -Moral -Attitudinal/Morale -Legal
What is an insurance plan or arrangement characteristics
-Pooling of losses -Payment of fortuitous losses -Risk transfer -Indemnification
Risk management objectives
-Pre-loss objectives -Post-loss objectives
What are the four main personal risks
-Premature death -Insufficient income during retirement -Poor health -Unemployment
Pre-loss objectives
-Prepare for potential losses in the most economical way -Reduce anxiety
What are the different types of personal lines
-Private passenger auto insurance -Homeowners insurance -Personal umbrella liability insurance -Earthquake insurance -Federal flood insurance
Identify loss exposures
-Property loss exposures -Liability loss exposures -Business income loss exposures -Human resources loss exposures *Purchasing life insurance on key employees -Crime loss exposures -Employee benefit loss exposures -Intangible property loss exposures
Major commercial risks:
-Property risks -Liability risks -Loss of business income (when the firm must shut down for some time after a physical damage loss), -other risks
What risks are involved with enterprise risks
-Pure -Speculative -Strategic -Operational -Financial
Classification of risk
-Pure vs. Speculative -Diversifiable vs nondiversifiable
2)Risk Financing refers to techniques that provide for payment of losses
-Retention (An individual or business firm retains part or all of the losses that can result from a given risk. Can be active or passive) -Active retention -Passive retention -Self insurance
Identifying loss exposure techniques
-Risk analysis questionnaires and checklists -Physical inspection (looking at physical property first hand) -Flowcharts -Financial statements -Historical loss data *If something happens to a competitor then company looks to fix this for their firm
Government insurance
-Social insurance programs
Post-loss objectives
-Survival of the firm -Continure operations -Stability of earnings -Continued growth
What are the social benefits of insurance
-The indemnification for loss (stability) -Reduction of worry and fear -Source of investment funds -Loss prevention -Enhancement of credit (protects lender's financial)
Objective risk declines as the number of ________ increases
-exposures
What are the steps risk managers use in selecting insurance
1)Risk manager selects the coverages needed, and policy provisions 2)Risk manager selects the insurer, or insurers, to provide the coverages 3)Risk manager negotiates the terms of the insurance contract 4)Information concerning insurance coverages must be disseminated to others in the firm
Risk transferred is used because....
A pure risk is transferred from the insured to the insurer who is typically stronger financially than the insured
There are several techniques available for managing risk. For each of the following risks, identify an appropriate technique, or combination of techniques that would be appropriate for dealing with the risk a) A family head may die prematurely because of a heart attack b)An individual's home mat be totally destroyed in a hurricane c)A new car may be severely damaged in an auto accident d)A negligent motorist may be ordered to pay a substabtial liability judgement to someone who is injured in an auto accident e) A surgeon mat be sued for medical malpractice
A) Life insurance and risk control activities (check-ups, etc.) B) Homeowners insurance and deductibles (portion you are responsible for) C) Collision insurance, deductibles, and loss retention D) Liability insurance (most important insurance for individuals) E) Liability insurance
Several types of risk are present in the U.S. economy. For each of the following, identify the type of risk that is present. Explain a) The department of homeland security alerts the nation of possible attack by terrorists b)A house may be severely damaged in a fire c) A family head may be totally disabled in a plant explosion d)An investor purchases 100 shares of microsoft stick e)A river that periodically overflows may cause substantial property damage to thousands of homes in the floodplain f)Home buyers may be faced with higher mortgage payments if the Fed raises interest rates at its next meeting g)A worker on vacation plays the slot machines in a casino
A) Non-diversifiable because it affects a large number of people B) A pure diversifiable risk C) Pure risk or personal risk D) Speclitive risk because there is a chance for gain E)Non-Diversifiable because it affects a large number of people F)Non-Diversifiable because affecting large number of people G)Speclitive risk because chance for gain/loss
-Definition of risk, -difference between objective and subjective risk -How objective risk with square root of number of cases -Difference between peril and hazard -Diversifiable and nondiversifiable -Different types of commercial risks -Identify examples of risk retention, risk transfer, risk avoidance -Difference in active and passive retention Chapter 2: -Pooling of losses definition -Law of large numbers -Characteristice of an ideally insurable risk -Examples of risk that are normally uninsurable risk by private insurance companies -Adverse selection -Definition of casualty insurance -Requirements of an ideally insurable risk -How insurance benefits society -Define expense loading -Know what re-insurance is Chapter 3: -What is risk management and risk managers -Type of information risk managers use for pure loss exposures -Define loss severity and loss frequency -when loss matrix should be used -Examples of non-insurance transfer, excess insurance -Steps in risk management process -Know what underwriting cycle is -Fact scenario of loss control, loss retention, insurance, etc.
About 35-37 question on exam
A motorist wishes to retain the risk of a small collision by purchasing an auto insurance policy with a $500 or higher deductible
Active retention
An individual is aware of the risk and deliberately plans to remain all or part of it
Active retention
Advantages and Disadvantages of non-insurance transfers
Advantages: -Can transfer some losses that are not insurable -Less expensive -
Advantages and Disadvantages of Insurance
Advantages: -Firm is indemnified for losses -Uncertainty is reduced Disadvantages:
Individual has several speeding tickets and a DUI charge who is charged at standard rates is an example of
Adverse selection
The tendency of persons with a higher-than-average chance of loss to seek insurance at standard rates
Adverse selection
Carelessness or indifference to a loss which therefore increases the frequency or severity of a loss such as leaving your keys in your car overnight or changing lanes frequently in heavy traffic
Attitudinal / Morale hazard
High loss frequency and high loss severity
Avoidance
An insurer owned by a percent firm for the purpose of insuring the parent firm's loss exposures
Captive insurer *A captive insurer is an insurance company *Typically doctors
**Refers to insurance that covers whatever is not covered by fires, marine, and life insurance (on test)
Casualty insurance
The probability that an event that causes a loss will occur
Chance of loss
Property and casualty coverages for business firms, nonprofit organizations, and government agencies
Commercial lines *Dont need people to sell them insurance because they know they need it
The law of large numbers explains that when the number of exposure units increases, the actual loss or risk _______
Decreases
Specified amount subtracted from the loss payment otherwise payable to the insured
Deductible
Two major types of loses associated with the destruction of theft or property
Direct and indirect loss
A financial loss that results from the physical damage
Direct loss
Pay income benefits
Disability plans
Affects only individuals and small groups and not the entire economy such as car theft, robberies, small house fires, etc. (one where an insurance company can offer more than one line)
Diversifiable risk
A food company agrees to deliver cereal at a fixed price to a supermarket chain in six months and lose money because grain prices rise. This is an example of
Financial risk
The uncertainty of loss because of adverse changes in commodity prices, interest rates, foreign exchange rates, and time value of money
Financial risk
Person slips on an icy sidewalk and breaks a leg.
Fortuitous loss
______ is one that is unforeseen, unexpected, and occur as a result of chance *Loss must be accidental
Fortuitous loss
How are social insurance programs paid for
General public paid by taxes
The condition that increases the chance of a loss
Hazard
Covers medical expenses because of sickness or injury
Health insurance
Who benefits mostly on social insurance programs
Heavily weighted in favor of low income groups
A technique for transferring the risk of unfavorable price fluctuations to a speculator by purchasing and selling future contracts on an organized exchange
Hedging
If a firm is a sole proprietorship the owner;s personal assets can be attached by creditors for satisfaction of debts
Incorporation
The insured is restored to his or her approximate financial position prior to the occurrence of a loss
Indemnification
Your home burns in a fire and your homeowners policy restores you to your previous position
Indemnification
A financial loss that results indirectly form the occurrence from physical damage
Indirect loss
As a result of the fire to your home, you incur additional living expenses to maintain your normal standard of living. This is an example of an
Indirect loss
Seeking more than the claim is worth
Inflated claims
The pooling of fortuitous losses by transfer of such risks to insurers, who agree to indemnify insureds for such losses, to provide other pecuniary benefits on their occurrence, or to render services connected with the risk
Insurance
____ is the most practical method for handling major risks
Insurance
______ is appropriate for low-probability, high-severity loss exposures
Insurance
Banks lend individuals money because of
Insurance (because you have credit on whatever you're paying for)
Who are the insurers
Insurance companies
Dishonesty or character defects in an individual that increases the frequency or severity of a loss such as faking an accident to collect insurance money and intentionally burning unsold merchandise that is insured
Moral hazard
______ is the reason insurance premiums are higher for everyone
Moral hazard
Method other than insurance by which a pure risk and its potential financial consequences are transferred to another party
Non-insurance transfer
Contracts, leases, hold-harmless agreements are examples of
Non-insurance transfers
Affects the entire economy or large numbers of persons or groups such as rapid inflation, floods, earthquakes, etc.
Nondiversifiable risk
Government assistance may be necessary in _________ and many insurance companies do not like covering this as much
Nondiversifiable risk
Transferring a risk to another party by contract, such as through a service contract or a hold-harmless clause in a clause
Noninsurance transfer
The probability of getting a head from the toss of a balanced coin is 1/2, and the probability if rolling a 6 with a single die is 1/6 because each only has one chance is an example of
Objective deductive probability/reasoning
The probability that a person age 21 will die before age 26
Objective inductive reasoning (not logically deduced)
Analyzing past mortality rates in order to determine the probability of death for a certain age group and charging premiums based on number of deaths in the certain categories is an example of
Objective probability
The long-run relative frequency of an event based on the assumption of an infinite number of observations and of no charge in the underlying conditions
Objective probability
The long-term relative variation of actual loss from expected loss
Objective probability
The relative variation of actual loss from expected loss
Objective risk
A bank offers online banking services and may incur losses if hackers break in to the bank's computers. This is an example of
Operational risk
Results from the firm's business objectives/operations
Operational risk
Individuals who earn incomes and are not insured against the risk of permanent disability
Passive retention
Means risk may be unknowingly retained because of ignorance, laziness, or indifference
Passive retention
Difference between chance of loss and objective risk: -Assume that a property insurer has 10,000 homes insured in LA and in Philadelphia and that the chance of a fire in each city is 1 percent. Thus on average, 100 homes should burn annually in each city. However the annual variation in losses ranges from 75-125 in Philadelphia and 90 - 110- in LA. Who has the greater objective risk even thought the chance of loss in both cities are the same
Philadelphia *100-75 = 25 *125-100 = 25 so objective risk is 25 LA *100-90 = 10 *110-100 = 10 objective risk is 10 so higher objective risk in Philadelphia
Physical condition that increases the frequency of a severity of loss such as icy roads, defective wiring, floods
Physical hazard
The _____ techniques is used to spread the losses of the few over the entire group
Pooling
______ involves spreading losses incurred by the few over the entire group so that in the process average loss is substituted for actual loss
Pooling
_______ is the heart of insurance
Pooling of losses
Disadvantages of retention
Possibly higher -losses -expenses -taxes
How do insurance make their money off of individuals
Premiums
_____ must be increased to pay additional losses with inflated claims
Premiums
Hard market
Profitability is declining, underwriting standards are tightened, premiums increase, and insurance is hard to obtain
Soft Market
Profitability is improving, premiums decline, and insurance is easier to obtain
Indemnifies property owners against the loss or damage of real or personal property
Property insurance
Involve the possibility of losses associated with the destruction of theft of property (Perils)
Property risk
A situation in which there are only the possibilities of loss or no loss such as an earthquake, premature death, job-related accidents etc. (easier to insure) (Either possible for your house to be destroyed or not to be destroyed)
Pure risk
If you can buy it through an insurance company and involves not making money this is a ____ risk
Pure risk
Premature death, job related accidents, medical expenses, and damage to property from natural disasters are examples of
Pure risk
An individual or a business firm retains part of all of the losses that can result from a given risk
Retention
Low loss Frequency and low loss Severity
Retention
Uncertainty concerning the occurrence of a loss
Risk
Techniques that reduce the frequency or severity of losses
Risk control
Techniques that provide for the payment of loses after they occur
Risk financing
(Process that identifies a loss exposure) faced by an organization and selects the most appropriate techniques for treating such exposures
Risk management
Implementation of a risk management program begins with a
Risk management policy statement
A pure risk that is transferred from the insured to the insurer, who typically is in a stronger financial position to pay the loss than the insured
Risk transfer
Private insurance provides numerous coverages that can be used to meet specific loss situations. For each of the following situations, identify a private insurance coverage that would provide the desired protection. a) Emily age 28, is a single parent with two dependent children. She wants to make certain that funds are available for her children's education if she dies before her youngest child finished college. b) Danielle, age 16, reverently obtained her driver's licenses. Her parents want to make certain they are protected if danielle negligibly injures another motors while driving a family car. c) Is married with two dependents. He wants his income to continue if he becomes totally disabled and unable to work. d) Tyler, age 35, recently purchased a house for 200,000 that is located in an area where tornados frequently occur. He wants to make certain that funds are available if the house is damaged or destroyed e) Nathan, age 40, owns an upscale furniture store. He wants to be protected if a customer
a) Life insurance b) Liability auto insurance c) Disability insurance d) Home owners insurance e) Liability commercial insurance
Indicate whether each of the following guarantees is considered insurance a) A new television is guaranteed by the manufacturer against defects for 90 days b) A new set of radial tires is guaranteed by the manufacturer against road defects for 50,000 miles c) A builder of new homes gives a 10-year guarantee against structural defects in the home d) A cosigner of a note agrees to pay the loan balance if the original debtor defaults on the payments e) A large group of homeowners agrees to pay for losses to homes that are damaged or destroyed by fire during the year
a) No (no pooling of losses)- Transfer of risk b) No (no pooling of losses)- Transfer of risk c) No (no pooling of losses) d) No (no pooling of losses) e) Yes (Pooling is the large and fortuitous loss is the fire)
Michael is a college senior who is majoring in marketing. He owns a high-milage 2005 ford that has a current market value of 2,500. The current replacement value of his clothes, television, stereo, cell phone, and other personal property in a rented apartment totals to 10,000. He uses disposable contact lenses, which cost 200 for a six-month supply. He also gas a waterbed in his rented apartment that has leaked in the past month. An avid runner, michael runs five miles daily in a nearby public park that has the reputation of being extremely dangerous because of he drug dealers, numerous assaults, and drive-by shootings. Michaels parents big work to help him pay his tuition. For each of the following risks or loss exposures, identify an appropriate risk management technique that could be used to deal with the exposure.
a) Physical damage to the 2005 Ford because of a collision with another motorist *Self insurance *Liability insurance b) Liability lawsuit against michael arising out of the negligent operation of his car *Liability insurance C) Total loss of clothes, television, stereo, and personal property of a grease fire in the kitchen of a rented insurance *Avoidance D) Disappearance of one contact lens *None E) Waterbed leake that causes property damage to the apartment *Avoidance F)Physical assault on Michael by gang members who are dealing drugs in the park as he runs *Avoidance G) Loss of tuition assistance from Michaels father, who is killed by a drunk driver *Life insurance
Risk managers use a number of methods for managing risk. For each of the following, what method for handling risk is used? a) The decision not to carry earthquake insurance on a firm's manufacturing plant b) The installation of an automatic sprinkler system in a hotel c) The decision not to produce a product that might result in a product liability lawsuit d) Requiring retailers who sell the firm's product to sign an agreement releasing the firm from liability if the product injures someone
a) Retention (They understand there is a risk and decide to retain it) b) Loss reduction (risk control) c) Avoidance d) Non-insurance transfer
