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CMA Final · Entrepreneurship and Startup · Risk Management Strategies

Case: Tarang Mobility, an electric scooter startup, plans a launch. The founders set aside a contingency fund to absorb minor warranty claims from its own resources, while buying product liability insurance only for large claims above a high threshold. This combined approach is best described as:

It is risk retention for small losses combined with risk transfer for severe losses. The startup funds minor warranty claims from its own contingency fund, while insurance covers only large claims above a high threshold. Because both methods are used, it is not complete transfer, avoidance or elimination.

  1. APure risk avoidance
  2. BRisk retention for small losses with transfer of severe lossesCorrect
  3. CComplete risk transfer
  4. DRisk elimination

Explanation

Small, frequent warranty claims are borne from the firm's own fund, which is retention. Insurance above a high threshold transfers the rare severe losses. Using both means a blend, not pure transfer, and nothing is avoided or eliminated.

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