What does "retention" mean in the context of risk management?

In the context of risk management, "retention" refers to the strategy of accepting the potential consequences of a risk and taking on financial responsibility for any losses that may arise. This approach implies that an organization or individual chooses to retain the risk rather than mitigate it through various risk management techniques such as avoidance, sharing, or transferring.

Retention can be viewed as an acknowledgment that, while certain risks may exist, the costs or impacts of these risks are either manageable or negligible compared to the benefits of engaging in the activity from which the risk arises. Organizations may choose retention for a variety of reasons, such as when the likelihood of a loss is low, when the costs associated with insuring against the risk are higher than the potential loss, or when they have sufficient resources to cover potential losses.

This option accurately reflects the concept of risk retention as a deliberate choice, where a party accepts the risk rather than outsourcing responsibility for it or attempting to eliminate it altogether.