Keeping Risk In-house

Businesses face a wide variety of risks and insurers stand ready to handle many of them. Not every sort of loss justifies the cost and trouble of an insurance claim, though. On the other hand, there are some sorts of losses that insurers simply will not cover. Any risk that a business manages on its own is known as a “retained risk,” and there are many different risk retention examples.

Different Types of Retained Risk

Retained risks run the gamut from the disastrous to the routine. In some cases, a risk might be on the borderline, where it can’t be covered out of pocket and can be insured, but an alternative to an outside insurance policy provides better, more affordable coverage.

  • Earthquakes and floods are classic examples of immense risk that can’t be insured at any price.
  • Shoplifting at a convenience store or repeated but superficial vandalism of a store exterior are at the other extreme, where a business might rather pay relatively predictable amounts out-of-pocket than go to the time and trouble to file a stream of small claims.
  • Professionals offering services that tend to generate costly lawsuits, such as architects, lawyers or doctors, are somewhere in the middle. They can certainly purchase insurance but may find the premiums prohibitive.

In the final example, one answer might be for a firm to join together with other similar businesses and form a risk retention group. This member-owned insurer can offer more specialized and more affordable policies than generalist outside firms.