Risk avoidance

Category: Risk management frameworks · Reviewed by Mark Fox, Broker · Renewals · Last reviewed

Risk avoidance

Risk avoidance (sometimes “terminate”) is the decision not to engage in the activity that gives rise to a risk. Of the four treatments, it is the most absolute — and often the most costly in opportunity terms.

Examples

• A broker declining to handle a class of business (e.g. high-risk crypto, sanctioned jurisdictions).
• An insurer withdrawing from a peril zone (e.g. Florida wind, California wildfire).
• A manufacturer discontinuing a product line.
• A service firm refusing to onboard clients above a defined risk tier.

Trade-offs

Avoidance trades risk reduction for revenue or strategic optionality. It is the right choice where:

• The activity is outside risk appetite even at the inherent level.
• Controls cannot reduce the risk to within appetite at reasonable cost.
• The regulatory environment makes the activity uneconomic.
• Reputational exposure outweighs commercial benefit.

Avoidance vs simply not pursuing

Avoidance is an active decision to stop an existing activity or formally decline a class of new activity. Not pursuing a hypothetical opportunity is not avoidance — it is the default state.

References

• ISO 31000:2018.
• COSO (2017) ERM Framework.

Cross-references

• Risk treatment
• Risk reduction
• Risk appetite

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