Risk Reduction

Definition - What does Risk Reduction mean?

Risk reduction, or loss mitigation, is a risk management technique. It refers to the way an insurance company can reduce its financial losses by implementing measures that will prevent actualizing risks or minimizing the number that can actually happen.

Insuranceopedia explains Risk Reduction

There are a number of ways that an insurance company can prevent losses. Here are just two of them.

The insurance company may require the owner of a property covered for theft and vandalism to install a better security system. If it is covered for fire, it might also suggest replacing materials that are no longer fireproof. These preventative measures will decrease the likelihood of a claim being filed and, consequently, of the insurance company having to pay for the insured's losses.

An insurance company may also ask an employer whose business it covers to upgrade the safety standards in their workplace or on their job sites. Safety measures that prevent employees from suffering serious injury will save the insurer from financial losses incurred through liability coverage.

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