The risk management concept involving setting aside funds to cover potential losses rather than transferring risk to an insurer is called

• A. Insurance.
• B. Risk pooling.
• C. Self-insurance.
• D. Contingent coverage.

Answer: (C)

The concept being tested is self-insurance: retaining risk by setting aside funds to cover potential losses instead of transferring that risk to an insurer. Instead of paying premiums to an insurance company, you build and maintain a reserve or fund to pay for losses as they occur. This works best when you have enough financial stability and cash flow to absorb expected losses and the administrative ability to manage those reserves. It can lower ongoing costs for predictable risks, but it also means you shoulder the financial impact if losses exceed what you’ve set aside.

Insurance, by contrast, transfers risk to an insurer in exchange for a premium. Risk pooling spreads risk across a group, not by building internal reserves. Contingent coverage isn’t a standard term for this approach.