For each of the following situations, select the most appropriate risk financing plan (retention, transfer, or...

For each of the following situations, select the most appropriate risk financing plan (retention, transfer, or hybrid) for the given organization based on the given loss exposure’s relative frequency and severity.

Local Package Delivery experiences frequent physical damage losses to its trucks.
National Farm Products wants to protect its poultry operation from the possible financial consequences of an avian flu outbreak.
Construction Contractor recognizes that worker injuries are an unfortunate consequence of doing business.

Solutions

Expert Solution

	Frequency	Severity	Loss exposure	Type Risk Finance plan
Local Package Delivery experiences frequent physical damage losses to its trucks.	HIGH	High	High	Transfer: It is a highly frequent risk that damages the trucks. The company should take a risk finance plan for the trucks.

National Farm Products wants to protect its poultry operation from the possible financial consequences of an avian flu outbreak.	Low	High	High	Hybrid plan: Transfer risk of epidemics: The company can take cover for potential epidemics. Retain the risk of managing other activities which are low for example a potential accident at the site, etc

Construction Contractor recognizes that worker injuries are an unfortunate consequence of doing business.	low	high	high	Transfer: The contractor can transfer risk to insurers to cover any potential accidents and any loss caused to employees. It can cover medical costs and also cover post accident expenses plus include a life cover.

Explanation:

Risk Financing Plan: Risk finance plan is the least cost cover to cover an organization's loss exposure. It ensures the post-loss availability of financial resources. Risk finance plans are designed to help businesses align the business to identify the risks, determine how to finance the risk and monitor the effectiveness of the risk finance plan.

Retention: Retention is when the company facing a risk or risks plans to absorb any potential loss rather than go transfer it to an insurer or athird party. The company may retain reserve funds to offset any potential unexpected financial losses.

Transfer: Transfer of risk is transmitting the company’s risk to a third party. It can be done by taking an insurance cover through a contract with an insurance provider. In return, the insured party will pay a premium to the insurance provider.

Hybrid: Risk fincaning techniques which are a combination of retention and transfer. Hybrid risk partially transfer risk of loss to the insurer. The organization will retain the balance risk. These are also known as blended insurance palsn.

keosha answered 1 week ago

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