What are the methods of managing risk in insurance?

The correct response is centered around the comprehensive strategies involved in managing risk within the field of insurance. Risk management encompasses several key methods, notably avoidance, reduction, sharing, and transferring of risk.

Avoidance involves eliminating the risk entirely by not engaging in the activity that generates the risk. Reduction means taking steps to minimize the severity or likelihood of risks. Sharing refers to spreading the risk across multiple parties, which can include various forms of insurance policies. Transferring risk typically involves passing the risk from one party to another, most commonly through insurance contracts.

Ultimately, option B is correct because it encapsulates the multifaceted nature of risk management, whereas the other options are too narrow or misguided. They fail to acknowledge the diverse strategies available to insurers and policyholders to effectively navigate and mitigate risks.