Question：Which of the following statements is incorrect?

　　A. Risk involves situations or events which may or may not occur, but whose probability of occurrence can be calculated statistically and the frequency of their occurrence predicted from past records.

　　B. Uncertainty can be converted to risk by taking out insurance.

　　C. Insurance deals with risk.

　　D. Uncertain events are those whose outcome cannot be predicted with statistical confidence.

　　The correct answer is: Uncertainty can be converted to risk by taking out insurance.

　　Risk involves situations or events which may or may not occur, but whose probability of occurrence can be calculated statistically and the frequency of their occurrence predicted from past records. This is true.

　　The statement that insurance deals with risk is true because insurance is a method of risk management (risk transfer).

　　It is true to say that uncertain events are those whose outcome cannot be predicted with statistical confidence.

　　Taking out insurance does not change the nature of uncertainty. It may be that insurance is not available for uncertain events.

　　Question：Risk mapping is a technique for assessing the severity of a risk and the probability or frequency of its likely occurrence. For what type of risk would it probably be most appropriate to take out an insurance policy from an insurance company?

　　A. Severity low, frequency high.

　　B. Severity low, frequency low.

　　C. Severity high, frequency low.

　　D. Severity high, frequency high.

　　The correct answer is: Severity high, frequency low.

　　Insurance might be the most appropriate risk hedging strategy when the potential cost is high, but the likelihood of the adverse outcome happening is fairly low. When the frequency is high, internal measures to manage the risk would probably be more appropriate.