A large company has decided to set aside money to settle frequent small losses that occur. What is this practice known as?

The practice of setting aside money to settle frequent small losses is known as self-insurance. This approach involves a company taking on the financial responsibility for a portion of its risk exposures rather than transferring that risk to an insurer. By self-insuring, the company creates a fund from which it can draw to pay for these smaller claims and losses as they occur, effectively managing its own risk internally.

Companies typically engage in self-insurance as a cost-saving measure when they find that the premium for traditional insurance coverage is high relative to the frequency and severity of the small losses they experience. This strategy allows businesses to maintain more control over their loss management processes and can lead to decreased overall costs in the long term, as they can ensure funds are specifically allocated for these frequent minor losses.

Self-insurance can be particularly advantageous for large companies that have the financial capacity to absorb such losses, as well as the administrative resources to manage their claims. The other concepts, such as coinsurance, dual insurance, and reinsurance, relate to different methods of risk management and do not pertain to the direct act of setting aside funds by an organization for its own losses.