South Dakota Crop Insurance Practice Exam

Which of the following is an example of risk management?

1. Increasing insurance premiums

2. Elimination of hazard

3. Creating more hazardous conditions

4. Ignoring potential threats

The correct answer is: Elimination of hazard

Elimination of hazard is a prime example of risk management because it involves taking proactive steps to reduce the likelihood of loss or damage. Risk management is fundamentally about identifying potential risks and mitigating them before they manifest into more significant issues. By eliminating hazards, one effectively reduces the exposure to potential claims or financial loss, thus enhancing overall safety and security. For instance, in the context of agriculture, this might include removing broken equipment from a field, properly maintaining irrigation systems to prevent crop loss, or implementing measures to prevent infestation by pests. The focus is on prevention, which is essential for effective risk management. Other choices represent actions that do not align with risk management principles. Raising insurance premiums is simply a reaction to increasing risk rather than addressing the risk itself. Creating hazardous conditions directly increases the probability of loss, and ignoring potential threats leaves vulnerabilities unaddressed, both of which are contrary to the objectives of risk management.