The risk team at an agricultural company in Easter Europe evaluates crop yield production performance. The evaluation reveals high temperature and water shortages will likely harm crop production, and current company insurance will not mitigate this exposure. The team recommends increasing coverage by purchasing an additional insurance policy that includes area yield protection.
According to the COSO ERM framework, which risk response strategy did the team recommend?
The risk team recommended a strategy of sharing the risk. By purchasing an additional insurance policy that includes area yield protection, the company is transferring a portion of the risk associated with high temperatures and water shortages to the insurance provider. This corresponds to the 'Sharing' risk response strategy in the COSO ERM framework, as insurance is a common method of risk sharing.
Insurance is Risk Sharing.
C is not correct, although risk reduction is one of the risk responses, but reduction focuses on improvements on processes, systems, or strategies, as opposed to creating new opportunities.
Insurance is risk sharing
From COSO's framework - "Sharing is a response that reduces the risk likelihood and impact by sharing a portion of the risk. An extremely common sharing response is insurance." So the answer should be B.
Insurance in itself is risk sharing. increasing the insurance to include yield protection is risk REDUCTION. Answer is C
In a general manner, insurance is a risk mitigation, thus reduction (ex CDS in financial risk) So, I beleive C is the right answer