What does avoidance of risk mean in insurance terms?

In insurance terminology, avoidance of risk refers to the strategy of completely eliminating exposure to potential loss. This means taking proactive steps to prevent any situations where a loss could occur, rather than merely transferring or sharing the risk through insurance mechanisms. For example, a company might choose to stop a dangerous operation that has a high likelihood of accidents to avoid the associated risks and potential losses entirely.

The other options reflect different risk management strategies. Assuming risk through deductibles means taking on some of the financial responsibility before insurance coverage kicks in, which does not eliminate the risk; instead, it merely shifts some of that risk back to the insured. Sharing loss among group members refers to risk pooling, where groups collectively bear the financial burden of losses, which is a method to mitigate personal risk but does not eliminate it. Lastly, insuring against potential losses involves transferring the risk to an insurance company, which also does not equate to avoidance, as it still acknowledges the risk as a factor to manage. Therefore, the focus on completely eliminating risk aligns specifically with the concept of avoidance.