In risk management, what does retention mean?

• A. Retention is keeping risk within the organization rather than transferring it
• B. Retention means transferring risk to an insurer
• C. Retention means outsourcing risk management
• D. Retention means delaying policy renewal

Answer: (A)

Retention in risk management means keeping the financial consequence of a potential loss inside the organization and paying for it with internal funds rather than shifting the risk to an insurer or another party. This approach is used when the expected cost of transferring the risk (like insurance premiums) is higher than the anticipated losses, or when the company has enough financial strength to absorb losses without harming operations. It often involves self-insurance, deductibles, or funded reserves—planning to cover losses internally. For example, a company might retain auto liability risk by creating a reserve to cover claims up to a certain amount instead of purchasing a policy to transfer that risk. The idea is to bear the risk rather than pass it on.