CII Certificate in Insurance - Insurance Broking Fundamentals (I10) Practice Test

Risk retention is one of the key issues faced by brokers when designing insurance programmes because it directly relates to how much risk their clients are willing to retain versus transferring to an insurer. Brokers need to assess a client's risk appetite and financial capacity to determine the appropriate level of risk retention. This involves identifying which risks the client can handle internally and which should be insured.

Balancing risk retention is crucial because it impacts the cost and structure of the insurance programme. A higher retention might lead to lower premiums but can result in greater financial exposure in the event of a significant loss. Conversely, too much risk transfer could raise costs unnecessarily. Thus, brokers must work closely with clients to advise on the optimal risk retention levels that align with their business objectives and risk management strategies.

While claims management, market share analysis, and policy administration are important aspects of the insurance process, they do not specifically address the fundamental need to tailor the risk exposure in the insurance programme the way that risk retention does.