Question

An auto insurer offers a discount for young drivers (ages 18-25) who complete a driver safety course. This is an example of:

A. loss reduction, which reduces the frequency of loss.

B. loss reduction, which reduces the probability of loss.

C. loss prevention, which reduces the severity of loss.

D. loss prevention, which reduces the probability of loss.

E. loss reduction, which reduces the severity of loss.

Answer 1

Loss reduction is the case when loss actually occured but the amount of loss is reduced by taking actions by the insurance company.

Loss prevention is the case when preventive actions are taken to reduce the probablity of loss.

A. Incorrect. Since in this case loss is prevented not recduced by providing training.

B. Incorrect. In this case, the loss is prevented not reduced by providing training.

C. Incorrect. Since the probability of loss is reduced, not severity.

D. Correct answer

E. Incorrect. Since in this case loss is prevented not reduced by providing training.