You have purchased a new insurance policy as part of your risk strategy. Which of the following risk strategy options have you engaged in?

Question

Options

• ARisk Avoidance
• BRisk Acceptance
• CRisk Transfer
• DRisk Mitigation

• A
  6% (2)
• B
  9% (3)
• C
  82% (28)
• D
  3% (1)

Explanation

Purchasing an insurance policy is the classic example of Risk Transfer because you are shifting the financial burden of a potential loss to a third party (the insurer) in exchange for a premium. Risk Avoidance would mean eliminating the activity that creates the risk entirely - for example, choosing not to drive rather than insuring your car. Risk Acceptance means acknowledging the risk and deciding to absorb any losses yourself, with no action taken to shift or reduce it. Risk Mitigation involves reducing the likelihood or impact of a risk through controls or safeguards, such as installing a sprinkler system to lessen fire damage - you still bear the risk, but you've lessened its bite.

Memory tip: Think of insurance as "transferring your problem to someone else's pocket." Any time money moves to a third party to cover your potential loss, that's Transfer - not mitigation, not avoidance.

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