What does it mean to actively retain risk?

Actively retaining risk refers to the practice of accepting a certain level of risk, particularly the smaller, more manageable risks, while choosing to transfer or mitigate larger risks through other means, such as insurance. This option highlights a strategic approach taken by individuals or businesses where they decide that the potential costs of smaller losses are outweighed by the benefits of retaining those risks.

By doing this, organizations can save on insurance premiums and administrative costs associated with insuring every potential risk. It allows companies to focus their insurance resources on significant risks that could severely impact their operations or finances. This method is often used in risk management strategies where businesses aim to optimize their overall risk profile by balancing between losses they can afford and those they cannot.