What describes passive retention in insurance?

Passive retention in insurance refers to the unplanned acceptance of losses that occur when risks are not actively managed or mitigated. When organizations or individuals do not take measures to reduce risk and simply accept the potential consequences without a formal plan, they are engaging in passive retention. This might happen due to a lack of resources, awareness, or ability to implement risk management strategies.

In contrast, planned approaches to managing risks or proactive measures to mitigate risk exposure involve conscious decision-making and strategies to prevent potential losses, which are not characteristic of passive retention. Moreover, a calculated strategy to retain high limits in insurance policies signifies a deliberate choice in risk management that seeks to manage or retain certain levels of risks, rather than passively accepting them without strategic planning.