What does retaining risk involve?

Retaining risk involves bearing the loss personally, which means that an individual or organization assumes responsibility for any potential losses that may occur. This approach is often taken when the cost of transferring the risk through insurance or other means is deemed to be higher than the potential loss itself. By choosing to retain the risk, the entity accepts the possibility of financial loss, but it may also benefit from the savings associated with not purchasing insurance or engaging in risk transfer strategies.

In the context of risk management, retaining risk typically occurs when the risks are considered manageable, or the entity has the financial capacity to absorb potential losses. It's a strategic decision that reflects confidence in one's ability to handle adverse outcomes without the protection of insurance.

The alternative concepts presented in the other options, such as transferring risk, insuring potential loss, or avoiding risk, represent different strategies in risk management. Each strategy serves a particular purpose, but they do not align with the definition of retaining risk, which focuses solely on accepting the risk rather than seeking to shield oneself from potential adverse consequences.