Arizona Adjuster Practice Exam

Which of the following represents an example of risk reduction?

1. Installing security alarms

2. Having fire extinguishers to limit fire loss

3. Purchasing insurance

4. Moving assets to a safer location

The correct answer is: Having fire extinguishers to limit fire loss

Risk reduction involves taking actions to minimize the likelihood or impact of a potential loss. Having fire extinguishers to limit fire loss is a prime example of this concept. Fire extinguishers serve as a proactive measure that allows individuals or organizations to address and control small fires before they escalate into larger, more damaging incidents. By equipping a building or property with fire extinguishers and ensuring that individuals know how to use them, the potential for significant loss due to fire can be significantly diminished, demonstrating a clear strategy of risk reduction. Other options, while related to risk management, focus on different approaches. Installing security alarms enhances protection but does not actively reduce the risk; it merely deters potential threats. Purchasing insurance transfers the financial risk rather than reducing it and moving assets to a safer location involves relocation, which is more of a risk avoidance strategy than direct risk reduction. Each option contributes to an overall risk management strategy but only the presence of fire extinguishers directly reduces the risk of fire-related loss.