Question

Maria is the risk manager for a large organization and is evaluating whether the organization should purchase a fire suppression system. She consulted several subject matter experts and determined that there is a 1 percent chance that a fire will occur in a given year. If a fire occurred, it would likely cause $2 million in damage to the facility, which has a $10 million value. If the exposure factor (EF) for a $10 million facility is 20 percent, what is the single loss expectancy (SLE)?

Answer 1

The single loss expectancy for the risk management will be $2,000,000 as it is the expected and maximum probable loss that will occur as a result of the peril.

What is a single loss expectancy?

In Insurance, a term "single loss expectancy" refers to monetary value that is expected from the occurrence of a risk on the asset insured.

Here, the maximum of $2 million in damage is excepted to occur to the facility if a fire occurs.

In conclusion, the single loss expectancy for the risk management will be $2,000,000 as it is the expected and maximum probable loss that will occur as a result of the peril.

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