A company determines that it is prohibitively expensive to become compliant with new credit card regulations.
Instead, the company decides to purchase insurance to cover the cost of any potential loss.
Which of the following is the company doing?
Click on the arrows to vote for the correct answer
A. B. C. D.A.
The company in this scenario is purchasing insurance to cover the potential loss associated with not being compliant with new credit card regulations. By doing so, the company is transferring the risk to an insurance company. Therefore, the correct answer is A. Transferring the risk.
Risk transfer is a risk management strategy in which the financial consequences of a risk are transferred to a third party, typically an insurance company, through the purchase of insurance or by contract. In this case, the company is acknowledging the risk of not being compliant with new credit card regulations and is choosing to transfer that risk to an insurance company rather than accepting it themselves.
Accepting the risk means that the company acknowledges the risk and is willing to bear the financial consequences of that risk if it occurs. Avoiding the risk means that the company takes steps to eliminate the risk entirely, such as by ceasing the credit card payment processing. Migrating the risk means reducing the risk through measures such as outsourcing credit card payment processing to a third party with expertise in compliance.
In summary, the company in this scenario is transferring the risk by purchasing insurance to cover the potential loss associated with non-compliance with new credit card regulations.