Which approach to risk involves accepting some level of loss or damage?

The approach to risk that involves accepting some level of loss or damage is known as retention. This strategy means that an individual or organization acknowledges the possibility of a loss occurring and takes on the associated financial risk without transferring it to another party. Businesses often use retention when they deem the potential losses to be manageable or when the costs of transferring the risk might be higher than the expected losses.

Retention can be applied in various contexts, including self-insurance, wherein an organization sets aside funds to cover potential losses rather than paying premiums for insurance. It reflects a conscious decision to mitigate risk internally rather than relying on external measures. This approach is often suitable for risks that are predictable and manageable, allowing entities to allocate resources efficiently while maintaining control over their risk management processes.