Question

An auto insurer offers a discount for young drivers (ages 18-25) who complete a driver safety course. This is an example of:

a. loss prevention, which reduces the severity of loss.
b. loss reduction, which reduces the frequency of loss.
c. loss reduction, which reduces the severity of loss.
d. loss prevention, which reduces the probability of loss.
e. loss reduction, which reduces the probability of loss.

Answer 1

The correct answer is option d. Offering a discount to young drivers who complete a driver safety course is an example of loss prevention, aimed at reducing the probability of loss.

Step-by-step explanation:

An auto insurer offering a discount to young drivers who complete a driver safety course is an example of loss prevention, which reduces the probability of loss. This strategy is based on the idea that educating young drivers about safe driving through a course will make them more aware and skilled behind the wheel, lowering the chances that they will be involved in accidents.

This example clearly aligns with the concept of loss prevention rather than loss reduction, as it is focused on avoiding the occurrence of the loss itself, not just minimizing the damage or frequency of such events that have already occurred.