Which of the following risk management techniques best describes the strategy of obtaining insurance to protect against losses due to bad weather conditions?

Question

Options

• ARisk avoidance
• BRisk reduction
• CRisk acceptance
• DRisk sharing

• A
  13% (7)
• B
  4% (2)
• C
  9% (5)
• D
  74% (39)

Explanation

Purchasing insurance transfers the financial burden of potential losses to another party (the insurer), making it a classic example of risk sharing - the risk itself isn't eliminated, but its consequences are distributed between the policyholder and the insurer. Risk avoidance (A) would mean not engaging in the weather-exposed activity at all (e.g., canceling an outdoor event entirely). Risk reduction (B) involves taking steps to lower the likelihood or severity of a loss (e.g., building flood barriers). Risk acceptance (C) means acknowledging the risk and absorbing any losses yourself, with no external mechanism like insurance.

Memory tip: Think of insurance as "sharing the pain" - you pay premiums, the insurer pays claims. Whenever you see a third party involved in absorbing losses, that's risk sharing, not avoidance, reduction, or acceptance.

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