North Carolina Adjuster Practice Exam 2025 - Free Adjuster Practice Questions and Study Guide

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What is the purpose of risk reduction in insurance?

To eliminate risk

To transfer risk

To mitigate risk

The purpose of risk reduction in insurance focuses on mitigating risk. This entails implementing strategies to lessen the potential impact or likelihood of a loss occurring. Risk reduction does not seek to eliminate risk entirely, since most activities involve some level of inherent risk. Instead, it promotes minimizing exposure through various means, such as loss prevention measures, improving safety standards, and educating policyholders about best practices to avoid unfavorable situations.

Mitigating risk plays a critical role in the overall risk management strategy of an insurance company, as it directly influences loss ratios and the insurer's ability to provide coverage affordably. By reducing risks, insurers can maintain stability and assure policyholders of their ability to handle claims effectively.

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To accept risk

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