Mastering Risk Management: The Benefits and Drawbacks of Self-Insurance in Business

Self-insurance is an example of which of the following types of risk management?

Retaining the risk

Self-insurance is an example of assuming the risk in risk management.

Assuming the risk is a risk management technique where an individual or organization chooses to retain the potential losses associated with a particular risk. Rather than transferring the risk to an insurance company and paying premiums, the individual or organization sets aside funds to cover any potential losses. Self-insurance is a common example of assuming the risk.

For example, a business may choose to self-insure its property instead of buying insurance from an insurance company. The business will estimate the potential losses and set aside funds to cover those losses. If a loss occurs, the business will use the set-aside funds to cover the loss. By self-insuring, the business avoids paying insurance premium costs and potentially saves money. However, the business also accepts the potential financial losses associated with the risks they have chosen to self-insure.

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