Which of the following is NOT a characteristic of self-insurance?

Self-insurance is a risk management strategy where an individual or organization retains the financial responsibility for certain losses rather than transferring that risk to an insurance company. The correct answer highlights the fundamental premise of self-insurance, which is characterized by retaining risk rather than transferring it.

Organizations that self-insure do so by directly paying for losses incurred, which demonstrates a clear commitment to accepting and managing their own risks rather than relying on external insurance coverage. This approach can lead to potential cost savings on premiums, as the organization avoids the costs associated with purchasing traditional insurance policies.

By maintaining responsibility for their own losses, organizations are often incentivized to implement better risk management practices to minimize future losses. This can be particularly advantageous for businesses that have predictable loss patterns or can self-fund a specific amount of exposure.

In summary, self-insurance is distinctly defined by the retention and management of risk within the organization, the payment of losses directly out of pocket, and the potential for cost savings. The choice that involves transferring risk to insurance companies contradicts the essence of self-insurance.