General Insurance✓ Verified · outline & fact-checked · Sep 2026Difficulty 1/5
Buying an insurance policy to shift the financial burden of a possible loss to the insurer is an example of which risk management technique?
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Answer & full 3-part explanation (select an option above, or peek)
Why A is correct
Insurance is the primary form of risk transfer: the economic consequences of a possible loss are shifted from the insured to the insurer in exchange for a premium. Transfer does not change the chance of loss; it changes who bears the financial impact. It is one of the five recognized risk management techniques, alongside avoidance, retention, sharing, and loss reduction.
Why the other options are wrong
- B) Avoidance eliminates the exposure altogether, such as never engaging in the risky activity; buying coverage keeps the exposure and moves its cost.
- C) Retention means bearing the loss personally, such as self-insuring; the insured here is not bearing it, the insurer is.
- D) Loss reduction lowers the frequency or severity of losses; insurance does not reduce the odds of the loss itself.
Memory hook
Transfer = pass the risk to the insurer's desk. The loss may still happen; the bill no longer lands on you.