Risk Tips Issue 1: Risk Transfer Methods
- Apr 25, 2017
- Investopedia Online, CAN Publications, Everest Loss Control Alerts, Wikipedia Online encyclopedia
Risk Transfer Methods:
Principles & Practice of Insurance
What is Risk Transfer?
Risk transfer is a risk management and control strategy that involves the contractual shifting of a pure risk from one party to another. One example is the purchase of an insurance policy, by which a specified risk of loss is passed from the Policy Holder to the Insurer. Other examples include; hold-harmless clauses, contractual requirements to provide insurance coverage for another party’s benefit and reinsurance. When done effectively, risk transfer allocates risk equitably, placing responsibility for risk on designated parties consistent with their ability to control and insure against that risk. Liability should ideally rest with whichever party has the most control over the sources of potential liability.