Question

An individual was involved in a head-on collision while driving home one day. His injuries were not serious, and he recovered. However, he decided that in order to never be involved in another accident, he would not drive or ride in a car ever again. Which method of risk management does this describe?

Answer 1

The individual's decision to never drive or ride in a car again following an accident is an example of risk management through avoidance. This is different from moral hazard, where insured individuals may take greater risks because they feel protected by insurance.

Step-by-step explanation:

The individual who decided not to drive or ride in a car ever again after a head-on collision is engaging in a risk management method known as avoidance. This means he is completely eliminating the possibility of being involved in another car accident by not participating in the activity that led to the risk in the first place. Risk management strategies such as avoidance may be extreme and not always practical, depending on the risk one is trying to mitigate. It's important to distinguish this from moral hazard, which is a situation where a person's behavior might become riskier after acquiring insurance because the perceived cost or consequences of risky behavior are reduced.

Answer 2

The method of risk management implied in this example is avoidance.

Step-by-step explanation:

Avoidance refers to completely disregarding or staying away from the situation, in this case, that caused harm. Since the person suffered an accident while driving, his logic is to never go near a car again to avoid such a situation from happening again.