Which statement best defines risk management?

Risk management encompasses the systematic approach to identifying, assessing, and prioritizing risks followed by coordinated efforts to minimize, monitor, and control the probability or impact of unfortunate events. The statement that defines risk management as the process of planning to reduce the impact of risk captures the essence of this comprehensive practice.

This definition highlights the proactive nature of risk management, which is focused on developing strategies to mitigate potential risks before they occur. This planning may involve various techniques, such as implementing safety measures, creating contingency plans, or transferring risk through insurance.

In contrast, while the assessment of ongoing regulations, transferring risk to another party, and analyzing financial statements are all aspects that may intersect with risk management, they do not encapsulate the entire process. These elements can be part of a broader risk management strategy, but they do not define the overarching goal and methodology of managing risk effectively. Therefore, the focus on planning to reduce impact reflects the proactive approach fundamental to understanding risk management in the insurance context.