Definition
Risk Mitigation
Risk mitigation (or reduction) is taking measures to lower the probability or severity of a potential loss.
Examples include installing fire alarms and sprinklers, fitting anti-theft devices, wearing seatbelts, or adopting safety procedures at a factory. Mitigation does not remove the risk but reduces its likelihood or the size of the loss if it occurs.
Insurers often reward mitigation with premium discounts, since lower expected losses justify lower prices. Mitigation usually works alongside risk transfer: a business reduces what it can and insures the residual. It is a core element of any sound risk-management plan.
Related terms
- HazardA hazard is a condition or circumstance that increases the probability or severity of a loss from a peril.
- Risk TransferRisk transfer is a risk-management technique that shifts the financial consequences of a risk to another party, typically an insurer.
- Risk AvoidanceRisk avoidance is eliminating exposure to a risk entirely by not engaging in the activity that creates it.
Plain-English explainer from The Dispatch Investors Encyclopedia. General information, not financial advice.