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ACCA Strategic Professional · Strategic Business Leader · Managing, monitoring and mitigating risk

Brightwell Logistics buys a policy covering damage to its warehouse by fire. A director states that the company has now eliminated its fire risk. Which assessment is most accurate within the TARA framework?

The director is wrong. Insurance is a Transfer response that shifts part of the financial loss to the insurer, but it does not eliminate the risk. Residual exposures such as business disruption, reputational damage, policy excesses and exclusions remain with the company, so the fire risk persists.

  1. ACorrect, because Transfer removes all consequences of the risk
  2. BIncorrect, because insurance is an Accept response
  3. CCorrect, because insurance is Avoid
  4. DIncorrect, because Transfer shifts the financial loss but residual risks such as disruption, reputation and uninsured losses remainCorrect

Explanation

Insurance is a Transfer response, but it transfers only the financial consequence to the extent covered. Business interruption, lost customers, reputational harm, excesses and exclusions remain with the company. The risk is therefore not eliminated.

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