MANAGEMENT

Detailed explanation-1: -As outlined above, purchasing insurance is a common method of transferring risk. When an individual or entity is purchasing insurance, they are shifting financial risks to the insurance company. Insurance companies typically charge a fee – an insurance premium – for accepting such risks.

Detailed explanation-2: -Risk shifting is the transfer of risk(s) from one party to another party. Risk shifting can take on many forms, from purchasing an insurance policy to hedging investment positions to corporations moving from defined-benefit pensions to defined-contribution retirement plans like 401(k)s.

Detailed explanation-3: -Insurance risk is the threat of a future financial loss that an insurer is willing to share with an individual or entity facing that threat. Insurance spreads the risks of policyholders among those policyholders by incorporating the Law of Large Numbers.

Detailed explanation-4: -Risk transfer is most often accomplished through an insurance policy. This is a voluntary arrangement between two parties, the insurance company and the policyholder, where the insurance company assumes strictly defined financial risks from the policyholder.

Detailed explanation-5: -Insurance shifts the risk of incurring significant financial losses to an insurance company, and protects the business owner against financial risks. In some cases, through subrogation, insurance companies reimburse the policyholder and then pursue legal action against the party at fault to cover any financial burden.