When someone purchases insurance, which risk management technique are they using?

When someone purchases insurance, they are using the risk management technique known as transfer. This method involves shifting the financial burden of a specific risk to an insurance company. By paying a premium, the individual effectively transfers the potential costs associated with losses or damages to the insurer. This allows the insured party to manage their financial exposure to risks such as accidents, natural disasters, or liability claims.

Utilizing insurance as a risk transfer mechanism means that individuals or businesses can mitigate the impact of unexpected events, ensuring a level of financial security and stability. In essence, this approach allows them to handle risks without bearing the full brunt of potential losses directly, as the insurance entity assumes that responsibility.

In the context of the other choices, avoidance would mean eliminating the risk entirely, reduction would entail implementing measures to lessen the severity or likelihood of the risk, and retention would involve accepting the risk and absorbing the financial consequences if it materializes.