---
title: the four things you can do with a risk
canonical_url: https://ensurance.app/guide/the-four-things-you-can-do-with-a-risk
markdown_url: https://ensurance.app/guide/the-four-things-you-can-do-with-a-risk.md
subtitle: "avoid it, reduce it, transfer it, or keep it. insurance is how you transfer it. reducing it at the source is the one almost nobody funds"
category: ensurance
---

# the four things you can do with a risk

*avoid it, reduce it, transfer it, or keep it. insurance is how you transfer it. reducing it at the source is the one almost nobody funds*

**Risk mitigation** is the set of actions that lower how likely a loss is, or how bad it will be when it comes. It is distinct from avoiding the activity, transferring the financial consequence (insurance), or accepting the risk. ISO 31000 lists seven ways to treat a risk. Most risk registers compress them to four: avoid, reduce, transfer, retain.

The hillside above the house, the wetland above the river town, and the forest around the reservoir do their work — holding soil, slowing water, keeping the slope — whether or not anyone writes a policy or holds a certificate. Insurance pays when that work fails; **[ensurance](/manual/ensurance?from=guide)** pays for the work while it is still being done. Neither one is the hill.

That work is mitigation, for the plant, the substation, and the rail line below. Open the risk register for any of them and the hillside is not on it.

## what the standard actually lists

ISO 31000:2018 sets out the treatment options in clause 6.5.2. They are not mutually exclusive:

1. Avoiding the risk by deciding not to start or continue the activity that gives rise to it
2. Taking or increasing the risk in order to pursue an opportunity
3. Removing the risk source
4. Changing the likelihood
5. Changing the consequences
6. Sharing the risk, for example through contracts or buying insurance
7. Retaining the risk by informed decision

Removing the source, changing the likelihood, and changing the consequences are what most people mean by mitigation. Taking the risk for an opportunity is the upside case and rarely gets a row. Collapse the rest and you get the four on nearly every register.

UK public-sector readers know them as the four Ts — tolerate, treat, transfer, terminate — from the 2004 edition of HM Treasury's Orange Book, which named a fifth, take the opportunity. The current edition uses ISO 31000's language.

The mapping: **avoid** is ISO's avoiding the risk, the Orange Book's terminate. **Reduce** covers removing the source and changing the likelihood or consequences — treat. **Transfer** is ISO's sharing the risk. **Retain** is retaining the risk by informed decision — tolerate. Note that ISO calls the insurance option *sharing*, not transfer; [there is no risk transfer](/guide/there-is-no-risk-transfer?from=guide) explains why that matters.

## the matrix

| response | what it does to the hazard | what it does to the bill | who usually pays | nature-related example |
|---|---|---|---|---|
| **avoid** | Nothing; you leave its path | Ends the exposure, and the income the activity earned | The organization, in relocation or forgone business | Move the plant off the floodplain |
| **reduce** | Makes the loss less likely, smaller, or later | Lowers expected loss; costs money now | Usually the asset owner, inside its own fence | Fund the upstream wetland or the fuel break |
| **transfer** | Nothing directly; pricing and policy conditions push the insured toward the reduce row | Swaps an uncertain loss for a known premium, up to a limit, after a deductible | The insured, through premiums priced on expected loss | Buy the property and business-interruption policy |
| **retain** | Nothing | Keeps the loss on your balance sheet | The organization, from reserves | Carry the deductible; reserve against a bad fire season |

Only one row changes the loss itself. Avoid steps out of the way. Transfer and retain decide who pays. Reduce changes how much there is to pay for. [Better cat models](/guide/why-better-cat-models-arent-fixing-your-loss-ratios?from=guide) measure the hazard; they do not shrink it.

Look at where the reduce row is spent: the floodwall, the sprinklers, the raised switchgear, the cleared perimeter. Inside the fence. The source of a nature-related hazard usually sits outside it — the slope that sheds the debris flow, the drained wetland that once held the crest, the overstocked forest upwind. Restoring wetlands and floodplains reduces and delays flood peaks; thinning and fuel breaks are intended to lower fire intensity and slow spread. It does not stop the largest events, which is why the other rows stay. But it is mitigation, and almost nobody funds it.

## why reduction at the source goes unfunded

Three reasons, none of them a failure of the people running the register.

**1. The source is on someone else's land.** A capital budget can harden a building the company owns. It cannot easily be spent on a ranch or a drained field forty miles upstream. The landowner is not a counterparty on the register.

**2. The benefit is shared, so no single budget owns it.** The wetland that lowers the crest at your plant lowers it for the town, the rail line, the utility, and the carriers on all of them. Each share is smaller than the whole cost, so each party waits. [Who pays to shrink the systemic loss](/guide/who-pays-to-shrink-the-systemic-loss?from=guide) follows that payor question up to the treasury.

**3. There is no line item that holds it as a position.** A premium has a clean home in the accounts. A payment to a steward upstream lands as a grant or an unexplained cost: spent, booked, gone. Nothing shows the money still working, so it is the first thing cut.

## where ensurance sits in the matrix

Ensurance sits in the reduce row — reduction at the source — paid now, held as a position, and shared among the parties exposed to the same place.

- **Someone else's land.** A certificate attaches to the place doing the mitigating, not to your site, and the money reaches the people doing the work there. You do not need to own the land.
- **Shared benefit.** Several exposed parties can hold a line on the same place. The plant, the utility, and the town each fund a share of one condition instead of waiting on each other.
- **No line item.** You hold a recorded share in the funded condition of a named place, not a receipt for an expense. Its value follows that condition and the market; it is not a promised return. How it is treated in your accounts or jurisdiction is a question for your auditors and counsel.

It is not the transfer row. A certificate has no trigger, no limit, and no claim, and it pays nobody after a loss. It does not replace the transfer row either. The policy covers the building; the certificate funds the ground the building depends on.

The scale, plainly: live certificates exist on a small number of named places, volumes are small, and most of the wider industry is still designed rather than built.

:::johnson
**the policy pays for the loss. the certificate pays for what keeps it smaller.** Ensurance is the reduce row, funded now in the place doing the mitigating and shared by everyone below it. The transfer row stays.

[how ensurance works →](/manual/ensurance?from=guide)
:::

## questions to ask before the next renewal

1. **Where is the physical source of this risk?** Not the asset — the slope, the channel, the forest stand, the field upstream.
2. **Who owns that land, and what are they paid to do with it today?**
3. **Who else is exposed to the same source?** The town, the utility, the railway, the neighboring plant, their carriers.
4. **What would reducing it at the source cost per year, next to this year's premium increase?** Put the numbers side by side. Do not assume one closes the other.
5. **Is any of it already funded?** A water fund, a land trust, or a public program may already act on that ground. If so, fund the place beside them — [supplemental ensurance](/manual/supplemental-ensurance?from=guide) — and they keep the program.
6. **What evidence, in what form, would move our rate or renewal terms — and who at the carrier decides?** [The insurer investment that actually reduces losses](/guide/insurer-investment-that-reduces-losses?from=guide) covers the carrier's side.
7. **How will we know the condition is holding?** Name the measure, who reads it, and how often, before money moves.

## hold both

The policy stays. It is the only row that puts cash in hand after the flood, and the one lenders require.

The matrix is a portfolio, not a menu. A well-run register avoids what it should not be near, reduces what it can, shares what it cannot carry alone, and retains the rest by decision. Funding the source retires none of those rows. It changes how much the others carry: when the wetland holds more of the crest, less loss is left for the policy and the reserve.

## the plain words underneath

- **The place's account** — the wetland or the slope holds an account in its own name that receives funding and pays the people doing the work there; parent accounts such as [inland wetlands](/inland-wetlands.ensurance?from=guide) and [risk resilience](/risk-resilience.ensurance?from=guide) are live today.
- **The certificate** — a [recorded share](/manual/certificates?from=guide) in the funded present condition of one named place.
- **Proceeds** — the [routing](/proceeds?from=guide) that sends a cut of each purchase and trade onward to the place and its stewards.

## frequently asked questions

### what is risk mitigation?

Risk mitigation is any action that lowers the likelihood of a loss or the size of its consequences — in ISO 31000's terms, removing the risk source, changing the likelihood, or changing the consequences. On a register it usually appears as "reduce" or "treat."

### what is the difference between risk mitigation and risk transfer?

Mitigation changes the loss itself: how often it happens or how large it is. Transfer, which ISO 31000 calls sharing, changes who pays for the loss through a contract or a policy, and leaves the hazard as it was.

### is insurance risk mitigation?

Not in ISO 31000's sense. A policy is the sharing option: it steadies the bill and pays after a covered loss, but it does not change the likelihood or size of the physical loss. Insurers do fund mitigation through inspections, loss-control engineering, and building standards; that work belongs in the reduce row.

### what are the four risk responses?

Avoid, reduce, transfer, and retain — a compression of the seven treatment options in ISO 31000:2018 clause 6.5.2. The 2004 UK Orange Book taught the same set as the four Ts: tolerate, treat, transfer, terminate.

### how do you fund risk mitigation that happens on land you don't own?

Through the place, not your own site. Work with the landowner, or with the water fund or land trust on that ground, and carry the funding as a certificate — a policy if the titleholder cooperates, a line through the stewards already acting there — shared with the others exposed to it.

## read next

Read next: [insurance terms, pointed earlier](/guide/insurance-terms-pointed-earlier?from=guide) — what premium, claim, and exposure become when the money moves before the loss.

If you run a facility or a supply chain below a slope, a floodplain, or a forest, [see how corporations fund the fuel break or source watershed a site depends on](/solutions/corporations?from=guide&topic=ensurance-vs-insurance).

## sources

[ISO 31000:2018 — Risk management — Guidelines](https://www.iso.org/standard/65694.html) — clause 6.5.2, selection of risk treatment options (the seven options)

[HM Treasury — The Orange Book: Management of Risk – Principles and Concepts](https://www.gov.uk/government/publications/orange-book) — current edition lists treatment options in ISO 31000 terms; the October 2004 edition set out tolerate, treat, transfer, terminate, and take the opportunity

[Environment Agency — Working with natural processes to reduce flood risk](https://www.gov.uk/government/publications/working-with-natural-processes-to-reduce-flood-risk) — evidence base for floodplain, wetland, and woodland measures

## the series

*Ensurance vs insurance* — six posts on two ways of paying for what a living place already does: one after the loss, one for the condition that keeps it smaller.

Read first: [what is ensurance?](/guide/what-is-ensurance?from=guide)

1. [ensurance vs insurance](/guide/ensurance-vs-insurance?from=guide)
2. [is ensurance a type of insurance?](/guide/is-ensurance-a-type-of-insurance?from=guide)
3. [the same flood, two instruments](/guide/the-same-flood-two-instruments?from=guide)
4. [the four things you can do with a risk](/guide/the-four-things-you-can-do-with-a-risk?from=guide) — this post
5. [insurance terms, pointed earlier](/guide/insurance-terms-pointed-earlier?from=guide)
6. [what ensurance cannot do](/guide/what-ensurance-cannot-do?from=guide)