Which risk management approach involves retaining responsibility for the loss?

Which risk management approach involves retaining responsibility for the loss?

• A. Risk Retention
• B. Risk Transfer
• C. Risk Sharing
• D. Risk Reduction

Answer: (A)

Retaining responsibility for the loss means keeping the financial burden in-house and paying for losses yourself rather than transferring them to another party. This is risk retention. It’s common through self-insurance, high deductibles, or reserving funds to cover potential claims. It’s chosen when the expected cost of transferring the risk is higher than the anticipated losses or when the organization has the means to absorb and control the funding of those losses. In contrast, risk transfer shifts the burden to another party (like buying insurance), risk sharing distributes the risk among multiple parties, and risk reduction focuses on lowering either the probability or the impact of a loss—without necessarily changing who bears the cost.

Retaining responsibility for the loss means keeping the financial burden in-house and paying for losses yourself rather than transferring them to another party. This is risk retention. It’s common through self-insurance, high deductibles, or reserving funds to cover potential claims. It’s chosen when the expected cost of transferring the risk is higher than the anticipated losses or when the organization has the means to absorb and control the funding of those losses.

In contrast, risk transfer shifts the burden to another party (like buying insurance), risk sharing distributes the risk among multiple parties, and risk reduction focuses on lowering either the probability or the impact of a loss—without necessarily changing who bears the cost.