Canadian Accredited Insurance Broker (CAIB) One Practice Exam

Which of the following are methods of dealing with risk?

1. Avoidance, control, retention, transfer

2. Avoidance, payment, delegation, transfer

3. Mitigation, avoidance, acceptance, liability

4. Control, acceptance, retention, analysis

The correct answer is: Avoidance, control, retention, transfer

The chosen response is correct because it accurately outlines four primary methods of dealing with risk: avoidance, control, retention, and transfer. - **Avoidance** involves taking steps to eliminate the risks or the activities that lead to them. For instance, a business might stop a risky operation to prevent potential losses. - **Control** refers to the actions taken to reduce the probability or impact of a risk occurring. This might include implementing safety measures, conducting regular assessments, or enforcing strict guidelines. - **Retention** means accepting the risks and their consequences rather than seeking to mitigate them. This approach might be suitable for risks deemed manageable or when the cost of control exceeds potential losses. - **Transfer** allows the risk to be shifted to another party, often through insurance. For example, a business might purchase an insurance policy to cover certain liabilities, thereby transferring the financial risk to the insurer. The other options present methods that either do not represent well-established approaches to risk management or include terms that do not align with the fundamental strategies recognized in risk management principles. This makes them less accurate in the context of formal risk management practices.