Definition - What does Risk Retention mean?
Risk retention is a company's decision to take responsibility for a particular risk it faces, as opposed to transferring the risk over to an insurance company. Companies often retain risks when they believe that the cost of doing so is less then the cost of fully or partially insuring against it.
Insuranceopedia explains Risk Retention
If a company retains a certain risk, it will have to pay for losses from that risk out of its own reserve funds. For this reason, it is important for companies to make sure that they can properly afford to pay for potential losses before they make the decision to retain particular risks. Companies may retain risks if the premiums for insuring against it are particularly high.
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