Every business in every industry faces risks every day. To mitigate the risk, businesses invest in different insurance policies. For example, if someone slips and falls in your business and suffers an injury, then your liability insurance should be able to cover the legal fees associated with a lawsuit. Workers’ compensation, as another example, covers the costs of employee injuries.
Benefits of Risk Retention
While casualty and property insurance is the best way to protect your business, sometimes the cost associated with the loss is less than the insurance cost. In other cases, the risk may not be insurable. For example, the damages may fall under the policy deductibles, so you must retain the risk.
Types of Risk Retention Groups
Some business owners who choose risk retention as a mitigation method use risk retention groups. While you retain your risk, you are also purchasing insurance with other companies who share a similar risk profile. While some RRGs are captive insurance entities, some are formed under traditional insurance regulations.
When it comes to risk mitigation, sometimes it costs less to deal with the cost of a risk when it comes up than to insure for it. For example, in businesses with a low liability risk profile, it may not be worth it to pay for certain insurances.