What is considered a financing technique used to manage risk?

Purchasing an insurance policy is considered a financing technique used to manage risk because it involves transferring the financial burden of potential losses from an individual or business to an insurance company. This transfer provides financial protection against unforeseen events that could lead to significant losses, such as property damage, liability claims, or business interruptions. By paying premiums, the insured effectively secures coverage that will compensate for specified losses, thereby alleviating the immediate financial impact those losses would otherwise have on their finances.

The other options, while important aspects of overall risk management, do not specifically serve as financing techniques. Implementing strict safety protocols reduces the likelihood of accidents and losses but does not involve financial transaction for risk transfer. Similarly, diversifying investments helps mitigate financial risk but does not provide direct financial protection like an insurance policy does. Conducting regular risk assessments is crucial for identifying risks but does not involve a financial mechanism to manage those risks.