What is the primary purpose of risk management in insurance?

• A. To identify, assess, and manage risk to minimize losses, often through transfer, reduction, avoidance, or retention
• B. To maximize premium income for the insurer
• C. To eliminate all risk immediately
• D. To diversify investments unrelated to insurance

Answer: (A)

Risk management in insurance aims to identify, assess, and manage risk to minimize losses, using approaches like transferring risk to others (buying insurance or reinsurance), reducing the frequency or severity of losses (loss-control measures), avoiding risky activities, or retaining risk when appropriate for manageable exposures. This framework supports setting appropriate premiums, making sound underwriting decisions, and preserving solvency and affordability for both insurers and insureds.

This aligns with the goal of protecting value and reducing the impact of uncertainty, rather than chasing higher premiums, trying to eliminate every risk, or pursuing diversification of investments unrelated to insurance.