When is risk retention most likely to occur?

Risk retention is most likely to occur in self-insurance scenarios because organizations or individuals choose to retain the financial responsibility for certain risks rather than transferring that risk to an insurance company. In self-insurance, the entity sets aside funds to cover potential losses rather than paying premiums for insurance coverage. This approach allows for greater control over risk management and can lead to cost savings if the retained risks are managed effectively.

In this context, self-insurance is a strategic decision often made by businesses because they can assess their own risk exposure and costs associated with potential claims. By opting for self-insurance, they assume the financial risk directly, thereby engaging in risk retention as they handle claims internally instead of relying on external insurance providers. This process can be particularly beneficial for organizations that have the financial capacity to cover losses and prefer to manage certain risks themselves.