ECONOMICS (CBSE/UGC NET)

Detailed explanation-1: -Risk reduction deals with mitigating potential losses by reducing the likelihood and severity of a possible loss. For example, a risk-avoidant investor who is considering investing in oil stocks may decide to avoid taking a stake in the company because of oil’s political and credit risk.

Detailed explanation-2: -Loss Prevention and Reduction: When risk cannot be avoided, the effect of loss can often be minimized in terms of frequency and severity. For example, Risk Management encourages the use of security devices on certain audio visual equipment to reduce the risk of theft.

Detailed explanation-3: -Risk reducing measures include frequency reducing and consequence reducing activities, and their combinations. The measures may be of a technical, operational, and/or organizational nature. Choosing the types of measures is normally based on a broad evaluation, where risk aspects are considered.

Detailed explanation-4: -Frequency refers to the number of claims an insurer anticipates will occur over a given period of time. Severity refers to the costs of a claim-a high-severity claim is more expensive than an average claim, and a low-severity claim is less expensive.

Detailed explanation-5: -Avoidance. If a risk presents an unwanted negative consequence, you may be able to completely avoid those consequences. Acceptance. Reduction or control. Transference. Summary of Risk Mitigation Strategies.