Texas General Lines — Property and CasualtyGeneral InsuranceEasy
A homeowner installs a new security system, smoke detectors, and fire extinguishers in their house. From an insurance perspective, what risk management technique are they primarily employing?
- ARisk Avoidance
- BRisk Transfer
- CRisk Retention
- DRisk Reduction
Show answer & explanationAnswer & explanation
Correct answer: D. Risk Reduction
Installing security systems and safety devices aims to lessen the severity or frequency of potential losses, which is the definition of risk reduction. This proactive approach makes the risk less impactful.
Why the other options are wrong
- A. Risk avoidance involves eliminating the exposure to a specific risk altogether.
- B. Risk transfer involves shifting the financial burden of risk to another party, typically an insurer.
- C. Risk retention involves accepting the financial burden of a potential loss.
Risk Reduction
A risk management technique that involves taking measures to decrease the frequency or severity of potential losses.
- Aims to minimize impact of loss.
- Examples include safety devices, maintenance.
- Often used in conjunction with risk transfer (insurance).
Memory trick: ART is a good REDuction plan.