METHODS OF HANDLING RISK


METHODS OF HANDLING RISK
Passive Risk Retention
Risk can also be retained passively. Certain risks might be unknowingly retained because of ignorance, indifference, or laziness. This is often dangerous if a risk that's retained gets the potential for destroying a person financially. Like, many persons with earned incomes are not insured against the chance long-term disability under either someone or group disability income plan. However, the adverse financial
consequences of a long-term disability generally are more severe than premature death. Thus, those who
are not insured against the chance of long-term disability are utilizing the means of risk retention in a most dangerous and inappropriate manner.
To sum up, risk retention is definitely an extremely useful technique for handling risk, especially in a modern corporate risk management program. Risk retention, however, is appropriate primarily for high frequency, low severity risks where potential losses are relatively small. Except under unusual circumstances, someone shouldn't use the means of risk retention to retain low frequency, high severity risks, like the danger of catastrophic losses like earthquake and floods.




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