Which of the following risk strategies is represented by the purchase of insurance?
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A. B. C. D.C.
Explanation - Transfer: Moving the liability for the risk to a third party by purchasing insurance, performance bonds, and so on.
The risk strategy represented by the purchase of insurance is C. Transfer.
Risk transfer involves shifting the potential impact of a risk to another party or entity. In the case of purchasing insurance, the organization transfers the financial impact of a potential loss to the insurance company. By paying the insurance premiums, the organization is essentially transferring the risk to the insurance company, which agrees to pay for any losses covered by the policy.
This strategy is often used when the cost of preventing or mitigating a risk is too high, or when the organization does not have the expertise or resources to handle a particular risk. By transferring the risk to an insurance company, the organization is able to reduce its exposure to potential financial losses.
On the other hand, risk mitigation involves taking actions to reduce the likelihood or impact of a risk. Risk avoidance involves eliminating the risk altogether by taking steps to prevent the risk from occurring. Risk acceptance involves acknowledging the risk but deciding not to take any action to prevent or mitigate it.
In summary, the purchase of insurance represents the risk transfer strategy, which involves shifting the potential impact of a risk to another party or entity, such as an insurance company.