What does "risk retention" imply for the insured?

Risk retention implies that the insured agrees to accept some degree of risk rather than transferring the entire risk to an insurance company. This concept refers to situations where the insured is willing to bear potential losses up to a certain limit. In a practical sense, this can mean choosing higher deductibles in an insurance policy or opting for self-insurance for certain risks where the insured is comfortable managing potential losses.

By accepting some level of risk, the insured can benefit from lower insurance premiums, as they are taking on the financial responsibility for smaller losses. This practice is common in many industries where businesses decide that the cost of insurance for minor losses outweighs the benefits of transferring all associated risk to an insurer.