Which of the following best describes risk retention?

Risk retention is accurately described as accepting the risk and managing it. This approach involves acknowledging the potential for loss and deciding to bear the financial consequences rather than transferring it to another party or taking steps to avoid it altogether. Organizations may choose risk retention as a strategy when the cost of transferring the risk (such as through insurance) is higher than the cost of accepting the risk itself or when they have sufficient resources to handle potential losses.

In managing retained risk, entities often implement strategies to mitigate potential impacts, such as reserve funds, risk management protocols, or contingency plans. This way, they prepare themselves to handle situations that may arise without incurring costs associated with shifting the risk through insurance or other means. Therefore, recognizing the implications of retaining risk is crucial for effective risk management in any organization.