The major risk in Jack Inc. is fire risk. The probability of a fire loss next year is 3% and if a loss occurs, it will cost Jack $400,000. The cost of residual uncertainty is $3,000 without risk management. To mitigate fire risk, Jack has two risk management options:

Option 1: Spend $12,000 to implement loss prevention to reduce loss probability to 1%. This can reduce the cost of residual uncertainty to $1,000. Option 2: Purchase full insurance at a premium of $18,000 without loss control. If a loss occurs, the insurance company will pay the full amount of loss.

What should Jack do? Should Jack manage fire risk?