What type of risk does self-insuring represent?

Self-insuring is a strategy where an individual or organization decides to set aside funds to cover potential losses instead of purchasing insurance from a company. This method reflects the concept of risk retention because the individual or company accepts the financial responsibility for any losses that may occur. By self-insuring, they are retaining the risk rather than transferring it to an insurer. This approach can be beneficial for managing minor losses or when the costs of insurance premiums outweigh the costs of potential losses.

Risk transfer, on the other hand, involves shifting the responsibility for potential losses to an insurance company through the purchase of a policy. Risk avoidance means taking steps to eliminate risk entirely, and risk mitigation involves implementing strategies to reduce the likelihood or impact of risk. In contrast, self-insuring, by its very nature, is about managing or retaining the risk internally rather than shifting it away to another party.