In insurance terms, what is the act of minimizing the effects of potential risks known as?

The act of minimizing the effects of potential risks in insurance is known as mitigation. This process involves implementing strategies or actions designed to reduce the likelihood of a risk's occurrence or to lessen its impact should it occur. For example, a business may invest in safety training and equipment to reduce the risk of workplace accidents, effectively minimizing potential losses associated with those risks.

Mitigation is crucial in risk management because it allows individuals and organizations to proactively address risks before they can cause significant harm. This not only encompasses physical actions, such as updating safety equipment or procedures but may also include changing behaviors or policies to foster a safer environment.

The other options refer to different risk management strategies: retention involves accepting the risk and its consequences, transfer entails shifting the risk to another party (like purchasing insurance), and avoidance means eliminating the risk entirely by not engaging in the activity that creates it. However, mitigation specifically focuses on reducing the impacts of risks that cannot be entirely eliminated.