The loss likely to arise in the event of risk attaching is the primary burden of risk and hence the need to caution oneself against such possibility. This uncertainty has led to the evolution of various methods of handling risk e.g.
Risk Avoidance – This is the outright refusal by a person to accept risk. It is accomplished by disengaging in the activity or venture that give rise to a risk. However it is a negative approach to risk management.
Risk Retention – is the most common method of managing risk where the person takes no positive step to address the problem. It may be voluntary or involuntary that the person does not know.
Transfer of Risk
This is effected by its transfer to another person willing to take the risk or to bear it e.g. Hedging. Hedging is a method of risk transfer whereby a trader buys and sells goods for future delivery cautioning himself against a decline or increase in the market price. Insurance transfers the risk from the insured to the insurer in return for a premium.
It may be accomplished in various ways e.g. formation of a company where persons pool there investments together and each member bears only a portion of a risk that the enterprise may fail. Insurance deals with risk through sharing.
Is effected by the adoption of loss prevention mechanisms e.g. Medicare, fire departments, burglar proof, alarms etc.