When your company needs to protect its investments, you often take a hard look at the impact of vendors, contractors or subcontractors and consumers. Contracts are signed between parties concerning certain activities, and a growing trend is the assumption of one party’s liabilities with the transaction by the other. Controlling these liabilities is a risk management strategy that involves risk transfer. If you are confused and wondering “what is risk transfer?”, read on.
Understanding the Transfer
A common example of a risk transfer occurs within insurance policies. A specific risk of loss is moved from the policyholder to the insurance company. The purpose of securing an insurance policy is to protect a business from the extreme financial loss that accompanies a specific risk, and as seen under the definition of a transfer, the risk is allocated equally between business and insurer. However, significant responsibility is usually placed on the party that has the most consistent ability to insure against the risk, while managing the liability rests with the party that controls the environment associated with the risk.
Unique Business Approaches to Risk Management
According to the experts at Arroyo Insurance Services, each business will have a different risk profile and will need a specialized insurance solution. The different liabilities and exposures to risk will impact premium costs, coverage limits, deductibles, and exclusions. Meet with a licensed broker to establish what policy is best for your company.