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CS Professional · Environmental, Social and Governance (ESG) - Principles and Practice · Risk Management

While designing its ERM process, Bharat Cement Ltd first identifies a plant-shutdown risk, then assesses likelihood and impact, then decides to buy business-interruption insurance for part of the exposure. Which risk response does this insurance step represent?

Buying business-interruption insurance is risk sharing or transfer, because part of the financial consequence of a plant shutdown passes to the insurer. It is not avoidance, since the plant continues to operate, and not acceptance, since a deliberate step is taken to shift exposure.

  1. ARisk avoidance
  2. BRisk sharing or transferCorrect
  3. CRisk acceptance
  4. DRisk exploitation

Explanation

Buying insurance shifts part of the financial consequence to an insurer, which is risk sharing or transfer. Avoidance would mean discontinuing the activity, and acceptance means taking no action. Since only part of the exposure is insured, the remainder is retained, but the insurance step itself is transfer.

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