- Sharing, Transfer, Avoidance, Reduction, Retention
- Sometimes, when a risk cannot be avoided and retention would involve too much exposure to loss. By sharing the risk w/ someone else, an individual also shares potential losses. That is the individual's own loss may not be as great if it occurs, but the individual may have to pay a portion of the losses experienced by others.
- means transferring the risk of loss to another party, usually an insurance company, that is more willing or able to bear the risk. Some non-insurance transfers of risk occur, such as when one agrees to assume the risk of another under the terms of a written contract.
- deals with risk by avoiding the risk in the 1st place. Usually means not undertaking an activity
that could involve the chance of loss. eg. by never flying, one could eliminate the risk of being in an airplane crash.
- risk reduction can work in one of two ways: it can reduce the chance that a particular loss will occur, or it can reduce the amount of a potential loss if it occurs. e.g installing a smoke alarm in a home would not lesson the possibility of fire, but it would reduce the risk of the loss from the fire.
- simply means doing nothing about the risk. People assume or retain the risk and, in effect, become self-insurers. e.g. the insured would pay a smaller portion of the loss than the insurer such as paying a deductible.