General Insurance✓ Verified · outline & fact-checked · Sep 2026Difficulty 1/5
A large employer that sets aside its own funds to pay employees' medical claims rather than purchasing insurance is using which risk management technique?
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Answer & full 3-part explanation (select an option above, or peek)
Why A is correct
Retention means keeping the financial consequences of a risk rather than shifting them to an insurer. A large employer with predictable claim patterns may choose to self-insure by funding its own medical claims. Retention can be deliberate and planned, as here, and is workable when the exposure is frequent enough to be predictable and not catastrophic in any single event.
Why the other options are wrong
- B) Avoidance means eliminating the risk-creating activity entirely, which the employer has not done.
- C) Transfer shifts the risk to an insurer; this employer is keeping the risk itself.
- D) Reduction lowers loss frequency or severity through prevention, not by funding losses internally.
Memory hook
Retention = self-pay the predictable. Transfer = hand the risk to an insurer.