Which risk management method is described as the insured accepting the possibility of loss and assuming part of the risk (such as a deductible)?

• A. Avoidance
• B. Reduction
• C. Retention
• D. Transfer

Answer: (C)

Retention is a risk-management approach where the insured chooses to bear part of the potential losses themselves, rather than transferring all risk to an insurer. A deductible is a clear example: the insured pays that amount out of pocket before the insurer begins to pay, so that portion of losses is kept by the insured. This reflects retaining the risk rather than avoiding or transferring it.

Avoidance means you eliminate exposure to the risk altogether, which isn’t described here. Reduction means you lessen either the probability or the impact of the loss, not necessarily by taking on a deductible. Transfer means shifting the risk to someone else, typically through purchasing insurance.