Texas General Lines — Property and CasualtyGeneral InsuranceEasy
A small retail business owner is concerned about potential losses from shoplifting, employee theft, and damage to inventory. They decide to purchase a comprehensive business insurance policy to cover these risks. This action is an example of which risk management technique?
- ARisk Avoidance
- BRisk Retention
- CRisk Transfer
- DRisk Reduction
Show answer & explanationAnswer & explanation
Correct answer: C. Risk Transfer
Purchasing an insurance policy shifts the financial burden of potential losses from the business owner to the insurance company, which is the definition of risk transfer.
Why the other options are wrong
- A. Risk avoidance would mean not operating the business to eliminate the risk.
- B. Risk retention would mean the business owner pays for all losses out of pocket.
- D. Risk reduction would involve installing cameras or better security to lessen theft/damage.
Risk Transfer
A risk management technique where the financial consequences of a potential loss are shifted from one party to another, typically through an insurance contract.
- Most common method is purchasing insurance.
- Insured pays premium, insurer assumes risk.
- Does not eliminate the risk, only its financial impact on the insured.
Memory trick: Avoid RETURNING REDUCED TRANSFERS.