Washington State Insurance Practice Exam

Which method of dealing with risk involves a reciprocal insurance exchange as a form of risk-sharing arrangement?

1. Risk Avoidance

2. Risk Sharing

3. Risk Transfer

4. Risk Reduction

The correct answer is: Risk Avoidance

The correct answer is Risk Avoidance because it involves completely avoiding the risk by not engaging in the activities that could lead to potential losses. In this case, a reciprocal insurance exchange would not be formed, as it involves sharing risks among members of the exchange rather than avoiding them entirely. The other options are not the best choices in this scenario: Risk Sharing involves spreading the risk among multiple parties rather than avoiding it, Risk Transfer involves transferring the risk to another party (such as an insurance company), and Risk Reduction involves taking actions to lessen the impact or likelihood of the risk occurring.