Reducing or mitigating the risk includes activities such as risk diversification, for example splitting the IT function into two separate geographical areas so that one area can back up the other one if a natural disaster strikes and destroys one of the IT centers. Self-insuring employees' medical expenses does not reduce the risk.
Exploiting a risk involves exposing the firm to risk in order to take advantage of a situation and thus increase the value of the firm. Self-insuring against the risk of employees' medical expenses does not increase the value of the firm.
Transferring or sharing risk usually means purchasing insurance. Self-insuring is not the same thing as purchasing insurance.
Retaining risk means bearing the risk, such as when a firm chooses to self-insure by budgeting for and paying the cost of any losses out of its own funds. Self-insuring employees' medical costs is an example of retaining a risk. A company would choose to do this if it believed that the cost to pay the expenses and to administer the payouts would be less than the cost to purchase insurance to cover the expenses.
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