How can "risk retention" help businesses reduce insurance costs?

Risk retention allows businesses to manage certain risks themselves rather than transferring all potential losses to an insurance provider. When a company opts to self-insure specific risks, it retains the responsibility for covering those losses and can avoid paying premiums associated with transferring that risk to an insurer. This can result in significant cost savings on insurance premiums.

Choosing to self-insure means that the business acknowledges the potential liabilities and sets aside funds to cover those costs as they arise. It also enables companies to tailor their insurance strategy based on their unique risk profile, potentially reducing expenses related to over-insurance or purchasing coverage for low-probability events.

This approach can lead to lower overall costs because the company is not paying premiums for risks that they are willing to absorb. It reflects a strategic decision to balance risk and cost, leveraging retained funds effectively. The other choices do not align with the principles of risk retention since they either involve increased coverage or different insurance strategies without directly contributing to cost savings through self-insurance.