What does it mean to "retain" risk in risk management?

To "retain" risk in risk management means to accept the possibility of loss when it occurs instead of transferring that risk to another party, such as through insurance. This approach often involves a conscious decision to bear the financial responsibility for potential losses that may arise from certain risks. Organizations or individuals may choose to retain risk for several reasons, such as the costs associated with transferring the risk (e.g., paying premiums for insurance) outweighing the potential losses or having sufficient resources to cover smaller losses without significant financial strain.

Selecting to retain risk can be part of a broader risk management strategy when it is deemed that the likelihood or impact of the risk is low or acceptable. By accepting responsibility for the risk, the organization engages in proactive measures to manage that risk internally, such as implementing safety protocols or building reserve funds to cover potential losses.

The other options suggest different approaches to handling risk, with avoidance indicating a strategy to eliminate exposure entirely, sharing risk referring to distributing it with others, and continuous monitoring indicating an ongoing review of risk management processes and insurance needs. However, none of these options accurately define the concept of risk retention as it specifically relates to accepting the loss directly when it occurs.