In terms of risk management, what does "diversification" refer to?

Diversification in risk management is primarily about spreading risk across a variety of assets or types of insurance policies to minimize potential losses. This approach is based on the principle that not all investments or policies will face the same risk exposure simultaneously. By holding multiple types of policies or a mix of different investments, an individual or organization can reduce the impact of any one investment or policy experiencing a loss.

For instance, in the insurance context, diversifying across various types of coverage—such as property, liability, and auto insurance—can help ensure that a significant loss in one area doesn’t lead to substantial financial harm overall. This strategy mitigates risk exposure by balancing potential losses with gains or stability from other policies.

The other choices do not accurately represent the concept of diversification. Investing in a single type of asset or insurance does not spread risk, but rather concentrates it. Evaluating claims history for policy adjustments is related to underwriting and risk assessment, rather than diversification itself. The use of high-deductible policies is a cost-saving measure, but does not directly relate to the principle of spreading risk. Thus, the correct choice captures the essence of how diversification operates within the realm of risk management.