A homeowner installs a sprinkler system to reduce potential fire damage, but does not cancel their fire policy. The homeowner is using which combination of risk management techniques?

Why A is correct

The recognized risk management techniques are avoidance, retention, sharing, reduction, and transfer. Installing a sprinkler system reduces the frequency or severity of a potential loss — that is loss reduction. Keeping the fire policy in force transfers the residual financial risk to the insurer — that is transfer. Using two techniques together is common and appropriate: reduction lowers the loss, and transfer covers whatever remains.

Why the other options are wrong

• B) Avoidance means not engaging in the activity at all; the homeowner kept the home and merely mitigated fire damage, so no avoidance occurred.
• C) Sharing spreads a loss among multiple parties, such as through a pool or captive; installing sprinklers is not sharing.
• D) Retention means keeping the risk without transferring it and would be contradicted by maintaining a policy; no avoidance is present.

Memory hook

Reduce the odds, then transfer the rest — sprinklers plus a policy is reduction plus transfer.