What might occur if risk retention is not managed properly?

If risk retention is not managed properly, the situation can escalate to a financial disaster. Risk retention involves holding onto certain risks rather than transferring them to an insurance carrier. When it's not managed effectively, organizations may find themselves unprepared for the financial implications of significant losses or claims. This can lead to a situation where the costs associated with those risks exceed the organization’s financial reserves or capabilities, potentially jeopardizing its overall financial stability.

Inadequate management of risk retention can result in unexpected large expenses, operational disruptions, or even bankruptcy in extreme cases if the retained risks manifest and cause substantial losses. Therefore, proper risk management strategies and planning are crucial to mitigate potential financial repercussions.