The use of insurance to manage risk is an example of what type of response?

The use of insurance to manage risk is an example of risk transfer. This approach involves shifting the financial burden of potential losses to another party, in this case, the insurance company. When an organization takes out an insurance policy, it pays a premium in exchange for coverage against certain losses. If those losses occur, the insurance provider compensates the organization according to the terms of the policy.

By transferring the risk, the organization can focus on its core activities without being overly burdened by the potential financial impact of unforeseen events. This strategy allows for better financial planning and risk management since the organization can predict the cash outflow from premiums rather than facing unpredictable losses.

In contrast, risk mitigation involves implementing controls to reduce the impact or likelihood of risks, while risk acceptance means recognizing the risk but choosing to tolerate it without taking action. Risk elimination refers to completely removing the risk, which is not achievable for most scenarios. Hence, the use of insurance distinctly illustrates the concept of risk transfer in risk management.