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[Introduction to Risk and Insurance]
What is a disadvantage of loss retention through borrowing?
When an organization chooses to handle losses through borrowing, it is using debt financing---usually a bank loan or line of credit---to pay for losses instead of transferring the risk through insurance. While this may offer flexibility, it has several drawbacks. The most significant is that borrowing reduces the company's available line of credit, limiting funds that could otherwise be used for operations, expansion, or emergencies.
This reduction in liquidity can create financial strain, especially if multiple losses occur or if interest rates rise. Borrowing also increases debt obligations, which can affect cash flow and borrowing capacity.
Option A is incorrect; special accounting is not necessarily required beyond standard debt tracking.
Option C is not inherently a disadvantage---senior management involvement is routine in risk management.
Option D is incorrect; the difficulty of borrowing is determined by creditworthiness, not by the presence of assets.
Thus, B is the correct disadvantage.