Once organisations decide on their risk tolerance - how much risk they can feasibly take on their balance sheet - and their risk appetite - how much risk they want to take - they can then retain risk accordingly.

Organisations that retain more risk typically enjoy lower insurance premiums, as risk is taken away from underwriters.

However, such reward has to be balanced against the internal financing of risk and the opportunity cost of tying up capital. This is the cost-benefit equation at the centre of all decisions about risk retention.

Critical questions you need to consider

• Do you know your company's risk tolerance?

• Have you measured your risk appetite in relation to financial covenants/credit?

• Is the company getting a sufficient financial reward for assuming this level of risk - a drop in the insurance premium commensurate with the extra risk you are taking?