ECONOMICS (CBSE/UGC NET)

Detailed explanation-1: -A transfer of risk shifts responsibility for losses from one party to another in return for payment. The basic business model of the insurance industry is the acceptance and management of risk. This system works because some risks are beyond the resources of most individuals and businesses.

Detailed explanation-2: -Provide protection : The primary purpose of insurance is to provide protection against future risk, accidents and uncertainty. Insurance cannot check the happending of the risk, but can certainly provide for the losses of risk.

Detailed explanation-3: -There are always inherent risks (both financial and physical) to projects and commercial ventures however, these can be significantly reduced by transferring risks through the use of insurance and reinsurance. The importance of contract certainty and clarity to provide effective risk transfer cannot be overstated.

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.

Detailed explanation-5: -Insurance Risk Management is the assessment and quantification of the likelihood and financial impact of events that may occur in the customer’s world that require settlement by the insurer; and the ability to spread the risk of these events occurring across other insurance underwriter’s in the market.