Simon owns several gas stations. He realizes that among the several risks associated with this type of business is the risk of minor damage to cars from dirty or contaminated fuel. He also knows that there is a small chance of a major loss if a fire occurred at one of his gas stations. Simon wants to control his insurance costs while still maintaining a reasonable risk management program. He is considering self-insurance. If he decides to use this approach, he will probably
A) rely entirely on a strategy of risk avoidance.
B) decide to cover both types of risk himself.
C) decide to self-insure for the smaller, more routine, losses associated with the damage caused by dirty or contaminated fuel, but seek coverage from an insurance company for the potentially much larger loss from a fire.
D) decide to cover the risk of fire himself, and take out an insurance policy to cover the risk of contaminated fuel.

Question

Quizplus · Accepted Answer

Self-insurance is a strategy to lower insurance costs by setting aside money to cover routine claims and then taking out insurance for larger, potentially catastrophic, losses.

Simon Owns Several Gas Stations