Property and Casualty Insurance Practice Exam

What are the methods of managing or handling risk?

1. Evaluate, control, retain, and avoid

2. Avoid, control, retain, and transfer

3. Manage, transfer, eliminate, and control

4. Assess, transfer, mitigate, and insure

The correct answer is: Avoid, control, retain, and transfer

The methods of managing or handling risk are fundamentally focused on different strategies that organizations or individuals can use to reduce potential losses or harm. The correct option highlights four primary methods: avoid, control, retain, and transfer. Avoidance refers to the option of eliminating the risk entirely by not engaging in the activity that creates exposure. Control involves taking steps to reduce the likelihood or impact of the risk through strategies such as implementing safety measures or enhancing security practices. Retention means accepting the risk when it falls within an organization's risk tolerance, often setting aside funds to cover potential losses. Transfer involves shifting the financial burden of risk from one party to another, commonly through insurance policies or contractual agreements. These methods collectively create a comprehensive approach to risk management, allowing individuals or organizations to tailor their strategies based on their specific risk profiles and circumstances. Understanding and effectively applying these concepts is crucial for developing a robust risk management plan.