Some businesses will set aside money to cover routine losses and buy "catastrophe" policies to cover big losses. This is an example of which of the following?
A) avoiding the risk
B) self-insuring against the risk
C) reducing the risk
D) loss-prevention program

Question

Quizplus · Accepted Answer

Self-insuring against the risk means setting aside money to cover potential losses instead of purchasing insurance. This is what the businesses in the scenario are doing by setting aside funds for routine losses and buying "catastrophe" policies for big losses. Avoiding the risk would mean not engaging in the activity that poses the risk, reducing the risk would involve taking steps to lower the likelihood of a loss occurring, and a loss-prevention program would involve specific actions to prevent losses from occurring in the first place. None of these fully capture the strategy of self-insuring for routine losses and purchasing catastrophe policies for large losses.

Some Businesses Will Set Aside Money to Cover Routine Losses