Which of the following is NOT one of the basic techniques used to manage risk?

Why C is correct

The basic risk-management techniques are avoidance, retention, sharing, reduction, and transfer. Avoidance eliminates the risk by not engaging in the activity; retention means accepting and funding the risk oneself; sharing spreads losses across a pool of similarly exposed parties; reduction lowers the frequency or severity of losses; and transfer shifts the financial consequence to another party, with insurance being the most common form. A guarantee is not a recognized risk-management technique because no one can promise that a loss will not occur. Businesses and individuals routinely combine these tools, for example retaining a deductible while transferring catastrophic exposures to an insurer.

Why the other options are wrong

• A) Avoidance is eliminating a risk entirely by refusing to engage in the activity, such as choosing not to operate a motorcycle, so it is a valid technique.
• B) Retention means accepting and funding the risk oneself, such as self-insuring a deductible, so it is a recognized technique.
• D) Transfer shifts the financial consequence of a loss to another party, typically an insurer, so it is a core risk-management technique.

Memory hook

Four real moves: Avoid, Retain, Share, Transfer. There is no 'guarantee' card in the risk-management deck.

Why A is correct

The recognized risk management techniques are avoidance, which means not engaging in the risky activity; retention, which means keeping the risk; sharing, which means spreading the risk among many, as in a pool; reduction or control, which lowers the chance or severity of loss; and transfer, which shifts the financial burden, as insurance does. Together these form the toolkit used after loss exposures have been identified and analyzed.

Why the other options are wrong

• B) Application, underwriting, rating, claims, and renewal describe the insurance process, not risk management techniques.
• C) Speculation and gambling are not risk management techniques; pooling is a form of sharing, and donation is not a recognized method.
• D) Purchase, replacement, cancellation, reinstatement, and lapse describe policy life-cycle events, not risk handling methods.

Memory hook

Avoid it, keep it, share it, shrink it, or shift it.