Which method of managing risk focuses on reducing the severity of losses?

• A. Avoidance
• B. Transfer
• C. Sharing
• D. Reduction

Answer: (D)

Reducing the severity of losses comes from loss-controlling measures that lessen how bad a loss would be if it occurs. This approach focuses on limiting the impact after an incident, not preventing the event itself or shifting the financial burden to someone else. For example, safety equipment, regular maintenance, and training all aim to keep damages or injuries smaller when a loss happens.

Avoidance eliminates exposure altogether by not taking the risk, transfer shifts the financial responsibility to another party (like an insurer) but doesn’t necessarily reduce how severe a loss would be, and sharing spreads the risk among many parties without changing the size of a loss for an individual.