Exam CLTD topic 1 question 37 discussion

Retention — (1) Assumption of risk of loss by means of noninsurance, self-insurance, or deductibles. Retention can be intentional or, when exposures are not identified, unintentional. (2) In reinsurance, the net amount of risk the ceding company keeps for its own account.

A. Retention

The four types of risk mitigating strategies include risk avoidance, acceptance, transference and limitation. Avoid: In general, risks should be avoided that involve a high probability impact for both financial loss and damage. Transfer: Risks that may have a low probability for taking place but would have a large financial impact should be mitigated by being shared or transferred, e.g. by purchasing insurance, forming a partnership, or outsourcing. Accept: With some risks, the expenses involved in mitigating the risk is more than the cost of tolerating the risk. In this situation, the risks should be accepted and carefully monitored. Limit: The most common mitigation strategy is risk limitation, i.e. businesses take some type of action to address a perceived risk and regulate their exposure. Risk limitation usually employs some risk acceptance and some risk avoidance.

Ans is A Retention as they are not purchasing insurance

Correct answer is "B." Risk is transferred to the insurer. Retention or "acceptance" is the strategy of doing nothing.

Correct answer is "A." Companies often retain risks when they believe that the cost of doing so is less than the cost of fully or partially insuring against it.