Several families jointly contribute to a fund that will cover any member family's catastrophic medical costs. This arrangement is an example of which risk management technique?

Why A is correct

Sharing (also called risk pooling) spreads the potential loss among a group of participants who each contribute to a common fund. Unlike insurance, there is no insurer assuming the risk — the participants themselves bear the losses collectively. This technique makes a large unpredictable loss more bearable because each member faces only a small, predictable contribution. Insurance is a specialized form of risk transfer, while the family fund described here is direct sharing among the members.

Why the other options are wrong

• B) Avoidance means eliminating the exposure entirely, such as not engaging in the risky activity; the families are not removing the exposure.
• C) Transfer through insurance requires an insurer to assume the risk in exchange for premiums; here the members themselves bear the losses.
• D) Retention means an individual bears the loss alone; sharing spreads the loss across many parties rather than keeping it with one.

Memory hook

Sharing = many shoulders, one fund. No insurer needed — the group is the insurer.