General Insurance PrinciplesQuestion 169 of 474
A restaurant installs a sprinkler system and at the same renewal raises its property deductible. These two steps are, in order:
a.risk avoidance, then risk transfer
b.risk reduction, then retention
c.risk transfer, then risk sharing
d.risk retention, then risk reduction
Explanation
Loss-control measures such as sprinklers are risk reduction, because they cut the frequency or severity of loss. Accepting a larger deductible is retention, since the insured now funds that first slice of every loss. Reversing the pair mislabels both. Avoidance would mean not operating the restaurant at all, and transfer is what buying the policy accomplishes.
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