What is meant by handling of risk? Explain risk retention as a method of handling risk.

Handling the risk refers to responding to the risk situation when the risk actually materialize. For handling the risk first the ownership of the risk should be allocated and the responsibilities of the persons handling the risk need to be identified and assigned. The persons concerned should document the risk when it arises and report it to the higher ups in order to have early risk mitigation measures and later to minimise the risk. Risk retention/absorption: It is the handling the unavoidable risk internally and the firm bears/ absorbs it due to the fact that either because insurance cannot be purchased of such type of risk or it may be of too expensive to cover the risk and much more cost-effective to handle the risk internally. Usually, retained risks occur with greater frequency, but have a lower severity. An insurance deductible is a common example of risk retention to save money, since a deductible is a limited risk that can save money on insurance premiums for larger set backs. There are two types of retention methods for containing losses as under: Active Risk Retention: Where the risk is retained as part of deliberate management strategy after conscious evaluation of possible losses and causes. Passive Risk Retention: Where risk retention occurred through negligence. Such type of retaining risk is unknown or because the risk taker either does not know the risk or considers it a lesser risk than it actually is.