Insurance is a form of risk:

Spreading of risk refers to the practice of diversifying risk among a larger pool, which insurance companies do by collecting premiums from many policyholders. While insurance does involve spreading risk, it fundamentally operates on the principle of transferring the risk from the insured to the insurer, making this choice misleading in the context of defining insurance.

Avoidance of risk entails eliminating the potential for loss by not engaging in risky activities, such as not driving to avoid car accidents. This strategy is the opposite of insurance, which accepts that risk exists and provides a mechanism to manage it rather than avoid it altogether.

Reduction of risk involves implementing measures to minimize the severity or likelihood of a loss, such as installing safety equipment. While insurance may support risk reduction strategies, it does not inherently reduce risk; instead, it provides a financial safety net for losses that may occur.