When it comes to managing financial risks, there is a key concept that every individual and organization should understand: self-insurance. This involves taking on the responsibility of assuming a financial risk instead of relying on an insurance company to cover it. In this way, every policyholder becomes a self-insurer by paying a deductible and co-payments. Additionally, there is a strategy known as risk retention, where a company can establish a fund to cover potential losses. This is possible because the company has a large enough group of exposure units, which helps reduce risk and make loss predictions more accurate. By understanding these concepts, individuals and organizations can better manage their financial risks and make informed decisions.
