Which arrangement involves an employer funding its own losses up to a point and possibly self-insuring beyond?

Which arrangement involves an employer funding its own losses up to a point and possibly self-insuring beyond?

• A. Assigned risk/residual market
• B. Excess insurance
• C. Guaranteed cost
• D. Self-insurance

Answer: (C)

The key idea here is risk financing through retention. The arrangement described means the employer takes on paying its own losses up to a certain limit and may add layer(s) to cover larger, catastrophic losses. That approach centers on the employer funding losses directly, rather than paying a fixed premium and letting the insurer bear the loss experience. That is the essence of self-insurance (risk retention with the option of excess or stop‑loss coverage to protect against very large claims). This fits best because other concepts describe different ways of transferring or pricing risk. An assigned risk/residual market is about placing high‑risk employers into a shared pool rather than how losses are funded. Excess insurance provides coverage above a retained amount but doesn’t itself define the employer funding losses up to a point. A guaranteed cost arrangement uses a fixed premium and transfers nearly all risk to the insurer, with no employer self-funding of losses. So the described funding approach aligns with self‑insurance.

The key idea here is risk financing through retention. The arrangement described means the employer takes on paying its own losses up to a certain limit and may add layer(s) to cover larger, catastrophic losses. That approach centers on the employer funding losses directly, rather than paying a fixed premium and letting the insurer bear the loss experience. That is the essence of self-insurance (risk retention with the option of excess or stop‑loss coverage to protect against very large claims).

This fits best because other concepts describe different ways of transferring or pricing risk. An assigned risk/residual market is about placing high‑risk employers into a shared pool rather than how losses are funded. Excess insurance provides coverage above a retained amount but doesn’t itself define the employer funding losses up to a point. A guaranteed cost arrangement uses a fixed premium and transfers nearly all risk to the insurer, with no employer self-funding of losses. So the described funding approach aligns with self‑insurance.