Running a company is all about taking risks. To lessen your risk and protect your assets, you should have insurance policies in place. Professional liability, general liability and workers’ compensation are just a few different policies that most businesses pay for.
In some cases, however, companies choose not to purchase insurance for certain risks. This is known as risk retention. Here is why you want to practice risk retention in some cases.
You May Have Little Choice
Some risks aren’t insurable or the loss will fall below your deductible. In this case, it is known as forced risk retention. If you cannot afford insurance coverage or if there is no insurance coverage, you should have a fund that covers unexpected losses.
You May Have to Pay More
Sometimes insurance costs more than the loss itself. For example, if you have owned a retail business, it may be more cost-effective to pay to clean up vandalism than it is to pay for insurance that covers it. You choose to pay out of pocket because it makes more financial sense.
When it comes to insurance coverage, you have to consider the most cost-effective for your company. Sometimes, you have to be strategic about how much you’re willing to spend. Risk retention in risk management is a strategy.