MANAGEMENT

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: -Risk transfer can be of mainly three types, namely, Insurance, Derivatives, and Outsourcing.

Detailed explanation-3: -Risks can be transferred between individuals, from individuals to insurance companies, or from insurers to reinsurers. When an insurance policy is purchased, the insurance company agrees to compensate the policyholder for specific losses in exchange for the premium received.

Detailed explanation-4: -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-5: -Risk Transfer to Reinsurance Companies That’s where reinsurance comes in. When insurance companies don’t want to assume too much risk, they transfer the excess risk to reinsurance companies. For example, an insurance company may routinely write policies that limit its maximum liability to $10 million.