A group of independent pharmacies jointly funds a pool to cover property damage losses that any member may suffer, in exchange for annual contributions. This risk-management technique is best described as:
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Answer & full 3-part explanation (select an option above, or peek)
Why A is correct
Sharing is the risk-management technique in which multiple parties exposed to similar losses pool their resources so the financial burden of any single loss is spread across the group. Each member contributes a relatively small, predictable amount, and the pool pays the losses that occur. This is distinct from transfer, where one party shifts risk to an insurer; from reduction, which lowers the frequency or severity of losses; and from avoidance, which eliminates the exposure entirely. Risk-sharing pools are a recognized alternative to conventional insurance for groups with common exposures.
Why the other options are wrong
- B) Avoidance means not engaging in the risky activity at all; the pharmacies still operate and face the same property exposures.
- C) Reduction lowers the likelihood or severity of losses, such as installing sprinklers; pooling does not make losses less likely to occur.
- D) Speculation is not a risk-management technique; it describes assuming risk in the hope of gain.
Memory hook
Sharing = many shoulders, one load. Pool the contributions and spread the losses.