A mid-sized manufacturing plant is reviewing its annual corporate insurance program to better manage cash flow and exposures. Which of the following implemented actions correctly illustrate the risk handling method of Risk Retention? (Select all that apply)
- Electing a $50,000 per-occurrence deductible on the commercial property policyAnswer
- Setting aside internal corporate funds to self-insure against minor worker injuriesAnswer
- CRequiring all machine operators to wear steel-toed boots and safety goggles
- DCanceling the production of a highly profitable but defect-prone product line
Answer
The actions that illustrate risk retention are electing a $50,000 per-occurrence deductible and setting aside internal funds to self-insure against minor injuries.
Risk retention involves assuming the financial consequences of a loss. A deductible requires the policyholder to pay a portion of the loss out of pocket, representing partial retention. Creating a self-funded reserve account to pay for losses internally is a direct form of active risk retention.
Step-by-Step Solution
Key Concept
Risk Retention occurs when an individual or business assumes financial responsibility for certain losses. Common examples include deductibles, copayments, and self-insurance.