Massachusetts State Life Insurance Practice Exam

The purpose of risk retention in a business strategy is to manage and absorb certain risks internally, which is precisely why this answer is the most accurate. Risk retention involves an organization acknowledging that some risks can be handled without external financial assistance, utilizing internal resources to cover potential losses instead. This approach often makes sense for risks that are either relatively low in impact or can be anticipated based on past experience. By deciding to retain certain risks, businesses can save on insurance costs and avoid the complexity of transferring those risks to insurers. This strategy can provide greater control over how risk is managed and can also lead to a better understanding of the business's risk profile. In contrast to transferring risks through insurance, retaining them can help organizations respond more effectively to their specific conditions, provided that this decision is informed and considers the potential consequences.