Which risk management technique is applied when insurance is purchased to protect a risk?

Avoidance entails eliminating a risk entirely by choosing not to engage in activities that could lead to that risk. For example, a business might decide not to enter a particular market due to the risks involved. This technique does not involve any form of insurance and thus does not protect against risk through financial means.

Elimination is similar to avoidance, as it involves completely removing the potential for a risk to occur. This may involve changing business practices or discontinuing certain products. Like avoidance, it does not incorporate insurance, making it an ineffective method for protecting against risks that cannot be entirely eliminated.

Reduction refers to actions taken to lessen the severity or likelihood of a risk, such as implementing safety protocols or regular maintenance. While this technique helps manage risks, it does not involve transferring the financial responsibility associated with those risks, which is the primary function of insurance.