What type of risk management strategy involves assuming financial responsibility for losses?

The strategy that involves assuming financial responsibility for losses is known as risk retention. This approach means that the individual or organization acknowledges the risk and decides to bear the loss if it occurs, rather than seeking to avoid the risk or transfer it to another party.

In risk retention, the decision to take on the risk is often based on a cost-benefit analysis, where the cost of potential losses is weighed against the expense of transferring the risk through insurance or other means. This is particularly applicable when either the likelihood of the risk materializing is low, or the financial impact of such a loss is manageable for the organization, allowing them to absorb the costs when they arise.

Other strategies, such as risk avoidance, involve eliminating the risk altogether, while risk reduction focuses on minimizing the impact or likelihood of the risk occurring. Risk transfer, on the other hand, involves passing the risk to another entity, typically through insurance. These strategies contrast with risk retention, which accepts the risk and prepares to deal with any consequences directly.