Principles of Risk Management and Insurance, 13th Edition

Techniques for Managing Risk

Techniques for managing risk can be classified broadly as either risk control or risk financing. Risk control refers to techniques that reduce the frequency or severity of losses. Risk financing refers to techniques that provide for the funding of losses. Risk managers typically use a combination of techniques for treating each loss exposure.

Risk Control

Risk control is a generic term to describe techniques for reducing the frequency or severity of losses. Major risk-control techniques include the following:

• Avoidance

• Loss prevention

• Loss reduction

• – Duplication

• – Separation

• – Diversification

Avoidance

Avoidance is one technique for managing risk. For example, you can avoid the risk of being mugged in a high-crime ...