A broker recommends that their commercial client repair the sprinkler system in their factory.

The correct answer is B. Risk reduction . Risk reduction is a risk management technique that aims to reduce the frequency or severity of losses without eliminating the activity entirely. A sprinkler system is a loss-control feature. If it is repaired and maintained properly, it can detect, control, or suppress fire before the fire spreads through the factory. This reduces the severity of a property loss and may also reduce business interruption, smoke damage, water damage, injury risk, and damage to stock or machinery. The broker is not advising the client to avoid the risk, because the factory continues operating. The broker is not transferring the risk to another party through insurance or contract. Diversification involves spreading risk across multiple locations, products, suppliers, or operations, not repairing fire protection equipment. This is a strong example of practical risk control because the recommendation improves the physical protection of the premises and may support better underwriting terms. Insurers often consider sprinkler condition, inspection records, water supply, alarm supervision, and maintenance when evaluating manufacturing risks. Course topic reference: Selecting Risk Techniques; Risk Reduction; Loss Prevention; Fire Protection; Sprinkler Systems .

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