In an effort to reduce insurance costs, the risk manager of a medium-sized manufacturing firm canceled the property insurance on the firm’s $8.5 million plant and equipment, for which the annual premium was about

$265,000. Two years laterwhen the actionwas discovered, the risk manager was called on the carpet by a horrified vice president of finance. “What were you thinking of?”

demanded the VP. “What if we had had a loss?” “But,” responded the risk manager, “we didn’t have a loss. The fact that I saved the firm over half a million dollars in the past two years is proof that the decision was the right one.” If you agree with the risk manager, help her convince the VP she is right. If you disagree, help the VP convince the risk manager she is wrong.