Page 128 - RISK Management IC 86

Risk Management

and do nothing for loss prevention, neither goes for
any insurance coverage. On the other hand the firm
may decide to eliminate risk by purchasing insurance.
This takes care of the uncertainty of risk, though at
the cost of a premium.

This leads to three conclusions :
(i) Firm seeking to maximize short term profit, regardless

of risk, would not spend on loss prevention or on
insurance.
(ii) If the objective of the firm is to maximize the expected
profit, then any expenditure on loss prevention is
worth undertaking.
(iii) If the firm is prepared to forego some profit in order
to achieve more stable earnings, then the firm can
consider purchase of insurance.

(c) Measuring attitudes - Individuals may be neutral to
risk, risk lover or risk averter. So a corporate
enterprise, consists of individuals comprising the
directors and member of the management.

Corporate attitude reflects the risk attitudes of the
directors and the board members individually, and
collectively.

Sashi Publications - www.sashipublications.com 129

Copyright@ The Insurance Times. 09883398055 / 09883380339