Avoidance of Risk

Example

“The construction company practiced avoidance of risk by refusing to take on projects in earthquake-prone areas without proper geological surveys.”

Memory Tip

Think 'AVOID' - A Very Obvious way to Ignore Danger completely.

Why It Matters

Risk avoidance can save individuals significant money on insurance premiums and prevent catastrophic financial losses. While it may limit some opportunities, it provides the highest level of protection against specific threats and can be the most cost-effective strategy for high-severity, low-frequency risks.

Common Misconception

Many people think risk avoidance means being overly cautious about everything, but it's actually a strategic decision about specific high-risk activities. Smart risk avoidance focuses on eliminating exposures with potentially catastrophic consequences while accepting manageable everyday risks.

In Practice

A homeowner considering flood insurance discovers their dream house is in a 100-year floodplain where annual premiums would cost $3,000 and potential flood damage could reach $200,000. Instead of buying the house and managing the flood risk through insurance, they practice risk avoidance by choosing a similar home on higher ground for the same price. This decision eliminates both the ongoing insurance costs and the risk of flood-related displacement and property damage.

Etymology

Derived from the Latin 'vitare' meaning 'to shun' and Old Norse 'rikr' meaning 'powerful or dangerous,' this term became common in insurance literature in the mid-20th century.

Common Misspellings

Related Terms

More in insurance

Other insurance terms you should know

See Also