Example

A multinational corporation loses 300 laptops annually and these laptops are valued at $850; would they take out an insurance policy to cover the costs of replacement if the insurance premiums were $21,250 monthly?

The answer is no, because the cost of replacing them is the same as the cost of the insurance, they would take a risk on not losing 300 laptops next year.

The calculations are as follows:

  • ALE: SLE x ARO
  • ALE: $850 x 300 = $225,000
  • Monthly cost: $225,000 / 12 = $21,250
Annual loss expectancy = Single loss expectancy X Annual rate of occurrence.

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