Texas All Lines Adjuster Practice Test

What occurs in risk retention by an insurer?

1. The insurer denies all high-risk coverage

2. The insurer chooses to cover a risk instead of rejecting it

3. The insurer avoids insuring any risks

4. The insurer eliminates all potential risks

The correct answer is: The insurer chooses to cover a risk instead of rejecting it

In risk retention by an insurer, the key concept is that the insurer actively decides to take on a certain level of risk rather than avoiding it. This means that instead of denying coverage or rejecting a policy based on the high-risk nature of a situation, the insurer acknowledges the risk and chooses to cover it. This approach allows the insurer to maintain a portfolio of policies that might include high-risk coverage, which can be beneficial for both the insurer and the insured. For the insurer, it can lead to increased premiums and potential profitability; for the insured, it provides access to coverage that might otherwise be unavailable. The other options deal with avoidance of risk rather than retention, suggesting a strategy of denial or elimination, which does not accurately reflect the nature of risk retention.