What term describes the process of minimizing the potential impact of a loss that cannot be avoided?

The term that describes the process of minimizing the potential impact of a loss that cannot be avoided is known as reduction. In the context of insurance and risk management, reducing risks involves implementing strategies and measures to lessen the severity or frequency of possible losses. This can include safety protocols, maintenance practices, and various other risk management techniques designed to mitigate the effect of adverse events, ensuring that, while a loss may still occur, its impact is lessened.

In contrast, transferring refers to shifting the financial responsibility for a loss from one party to another, often through insurance. Declination is a term used when an insurer refuses to provide coverage for a specific risk or individual, which does not align with the concept of mitigating existing risk. Adverse selection occurs when there is an imbalance in the risk pool, often resulting in policyholders who are more likely to claim being more inclined to purchase insurance, rather than addressing the loss directly through reduction strategies. In this context, reduction is clearly the most appropriate term to use when focusing on minimizing the negative impact of unavoidable losses.