What does the term "active retention" refer to in risk management?

The term "active retention" in risk management is appropriately defined by the choice that describes the process of choosing to bear financial responsibility for specific losses. This involves a conscious decision to retain certain risks rather than transferring them through insurance or other means. By actively deciding to take on certain risks, an individual or organization acknowledges the potential for loss but believes that it is either manageable or unlikely to occur. This strategy can illustrate confidence in their risk management practices, such as implementing loss prevention measures or having sufficient financial reserves to cover potential losses.

In contrast to the correct choice, the other options present different concepts within risk management. Selecting insurance coverage pertains to risk transfer, while completely avoiding exposure indicates risk avoidance, neither of which aligns with the idea of "active retention." Similarly, transferring liability to another party relates to shifting risk rather than retaining it. Understanding active retention is critical for effectively managing risk and making informed decisions about risk financing.