Question

Explain how insurance transfers risk to a third party.

Answer 1

Risk transfer can be defined as a mechanism of risk management that involves the transfer of future risks from one person to another and one of the most common examples of risk management is purchasing insurance where the risk of an individual or a company is transferred to a third party (insurance company).

Risk transfer in its true essence is the transfer of the implications of risks from one party (individual or an organization) to another (third party or an insurance company). Such risks may or may not necessarily take place in the future. Transfer of risks can be executed through buying an insurance policy, contractual agreements, etc.

Answer 2

Hope this helps!

Step-by-step explanation:

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.