What is a key component in determining how to handle risks?

A key component in determining how to handle risks is the analysis of frequency and severity. This involves assessing how often a particular risk is likely to occur (frequency) and the potential impact or loss associated with it if it does occur (severity). Understanding both of these factors is crucial for effective risk management because they help organizations prioritize which risks require immediate attention and resource allocation.

For example, a risk that has a high frequency but low severity may be managed differently than a risk that has a low frequency but high severity. By analyzing these two aspects, organizations can develop appropriate strategies for mitigation, transfer, acceptance, or avoidance of risks, leading to more informed decision-making and efficient risk management processes.

While cost of insurance, public perception, and market trends can influence the overall risk management strategy, they do not inherently define how to handle risks. Frequency and severity specifically provide the foundational understanding necessary to evaluate and address risks effectively.