What does risk reduction refer to in the context of insurance?

Risk reduction in the context of insurance involves taking proactive measures to prevent or minimize potential losses. This can include implementing safety protocols, maintaining property, or utilizing technology to avert accidents or damages. The goal is to mitigate the likelihood of a loss occurring, which can lead to fewer claims and lower premiums over time.

In contrast, compensating for losses refers to the function of an insurance policy to provide financial support after a loss happens, not before. Identifying risks is more about understanding what potential issues exist rather than actively preventing them. Lastly, analyzing insurance policy performance involves evaluating how effectively a policy meets its objectives rather than reducing risk upfront. Risk reduction focuses on the preventative aspect, which is key for both individuals and businesses in managing their exposure to unforeseen events.