What insurance strategy may involve retaining a portion of risk internally?

The strategy of retention in insurance involves a company or individual deciding to retain a portion of the risk internally rather than transferring all of it to an insurance provider. This approach can be beneficial for managing costs, as it eliminates some premium expenses associated with transferring the entire risk. By choosing to retain some risk, an entity effectively self-funds potential losses up to a certain limit, which can often lead to greater control over loss management.

Retention can be particularly useful for organizations that have the financial capacity to absorb certain losses and prefer to take on some level of risk as part of their overall risk management strategy. This can also encourage businesses to implement better risk mitigation practices, knowing that they will be responsible for the costs of certain losses.

In contrast, other strategies like co-insurance, excess insurance, and self-insurance have different purposes and mechanisms when it comes to risk management. Co-insurance typically involves sharing risk between multiple parties, excess insurance provides additional coverage beyond a specified limit, and self-insurance means fully managing and covering one’s own risks without transferring any to an insurer.