Washington State Insurance Practice Exam

What is the method of dealing with risk by a group sharing similar exposures called?

1. Mutual Arrangement

2. Risk Transfer

3. Risk Sharing

4. Risk Avoidance

The correct answer is: Mutual Arrangement

Mutual Arrangement is the method of dealing with risk by a group sharing similar exposures. This concept involves individuals or entities coming together to spread the risk among all participants, thereby reducing the financial impact on any single member in case of a loss. This sharing of risk is a common practice in insurance, where policyholders pool their premiums to create a fund that can cover the claims of any member who experiences a loss. The other options are not the correct answers: - Risk Transfer involves transferring the risk to another party, such as an insurance company, through the purchase of an insurance policy. - Risk Sharing, as explained above, is the correct answer related to the concept of Mutual Arrangement. - Risk Avoidance refers to a strategy where the entity chooses to avoid engaging in activities that carry a particular risk.