Which method of risk management involves using self-insurance?

The method of risk management that involves using self-insurance is retention. Retention refers to the strategy where an individual or organization decides to accept and manage the financial risks associated with certain events, often by setting aside funds to cover potential losses, rather than transferring the risk to an insurance company.

Self-insurance is a common form of retention where a business or individual does not purchase traditional insurance for certain risks but instead assumes the responsibility for covering that risk internally. This approach often applies to risks that are predictable and manageable, allowing entities to save on premium costs and gain more control over potential claims.

In the context of risk management, avoidance would involve completely eliminating the risk, sharing involves spreading the risk among multiple parties, and transfer pertains to passing the risk to another entity, usually through purchasing an insurance policy. Retention through self-insurance allows entities to take charge of their financial planning regarding risk exposure.