Which risk management technique involves sharing the financial burden of a loss?

The concept of sharing the financial burden of a loss is best represented by risk sharing. This technique involves two or more parties agreeing to distribute the financial consequences of certain risks among themselves. This approach is often utilized in various forms of insurance, such as captive insurance or when companies collaborate on projects, thereby lowering the impact of adverse events on any single entity.

In risk sharing, organizations or individuals may pool their resources and/or risks to mitigate the financial impact that could arise from a loss event. By doing so, they can sustain operations with less disruption, as the overall financial exposure is diluted among the participants. This technique promotes collaboration and can lead to innovative solutions for risk management.

Other approaches, like risk avoidance, involve changing plans to sidestep the risk altogether; risk control focuses on minimizing the likelihood or impact of a loss without financial sharing; while risk retention means accepting the risk and its accompanying costs entirely, which does not involve sharing. Understanding these distinctions helps clarify why risk sharing is the correct answer in this context.