Risk-Handling Techniques: Loss Control, Risk Transfer, and Loss Financing
■ Describe the three broad categories of risk-handling techniques: loss control, risk transfer, and loss financing.
■ Differentiate between loss prevention and loss reduction, two broad types of loss control.
■ Describe methods that can be used to transfer risk away from the firm, including insurance, contractual transfer, and the use of limited liability ownership forms.
■ Differentiate between external and internal loss-financing techniques.
■ Describe the advantages and disadvantages of insurance as a risk-handling technique.
■ Describe the alternatives available to firms that want to finance losses internally.
■ Describe how loss frequency and severity affect a firm’s choice of risk-handling techniques.
