In terms of risk management, what does the term 'risk retention' generally refer to?

The concept of 'risk retention' in risk management refers to the decision to accept or retain the potential financial consequences of a risk rather than transferring it to an insurance company or another party. This approach usually involves holding onto the risk of potential losses without purchasing insurance specifically to cover those losses.

Organizations or individuals may choose to retain risk when the costs of insurance are higher than the potential loss, or when they believe they can manage the risk effectively through internal measures. By retaining risk, they are essentially "self-insuring" to some extent, taking on the responsibility for dealing with any adverse effects should the risk materialize.

This strategy allows for more control over the situation, though it does require an assessment of the potential impact of loss and a well-thought-out plan to deal with such occurrences if they arise. This understanding is fundamental for those preparing for the Florida 2-20 Insurance Agent License, as it underlines the diverse approaches to managing risk within the insurance field.