Which of the following best describes the purpose of self-insured retention?

Self-insured retention (SIR) is a risk management tool that reflects a strategy where the policyholder retains a portion of the risk, rather than transferring it completely to the insurer. This concept is integral to certain types of insurance policies, particularly in situations where the insured has higher deductibles.

The main objective of self-insured retention is to encourage the insured party to take an active role in managing and mitigating their own risks. By retaining responsibility for a portion of the losses before the insurance coverage kicks in, businesses are incentivized to implement better risk management practices, review claims meticulously, and promote workplace safety, thereby potentially reducing the frequency and severity of losses.

In contrast, the other options address different aspects of insurance but do not align as closely with the core purpose of self-insured retention. While lowering premium costs can be a potential effect of choosing a self-insured retention strategy, it is not the primary purpose. Coverage for small claims is not typically a feature of SIR, as self-insured retention generally applies to claims above a certain threshold. Lastly, while SIR may indirectly deter fraudulent claims through closer scrutiny of losses retained by the insured, protecting insurance companies from fraud is not a direct objective of SIR. The main focus remains on