ECONOMICS (CBSE/UGC NET)

Detailed explanation-1: -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 policyholder to the insurer.

Detailed explanation-2: -The most common way to transfer risk is through an insurance policy, where the insurance carrier assumes the defined risks for the policyholder in exchange for a fee, or insurance premium, and will cover the costs for worker injuries and property damage.

Detailed explanation-3: -Risk transfer can be of mainly three types, namely, Insurance, Derivatives, and Outsourcing. Insurance: In the case of Insurance, there is an insurance policy issued by the company, the risk bearer, to the policyholder, to compensate for the specified risks to the insured asset of the policyholder.

Detailed explanation-4: -The purpose of risk transfer is to pass the financial liability of risks, like legal expenses, damages awarded and repair costs, to the party who should be responsible should an accident or injury occur on the business’s property.