Risk Transfer
Shifting the financial consequences of a loss from an individual to an insurer through the purchase of insurance, the most common risk management technique for large or uncertain losses.
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Practice This Concept
In a reinsurance arrangement, the primary insurer that transfers part of its risk to a reinsurer is called the:
Ceding company — The insurer that buys reinsurance is the ceding company because it cedes (transfers) a portion of its exposure to a reinsurer. The reinsurer indemnifies the ceding company for the ceded losses in exchange for a share of the premium. Reinsurance helps insurers handle large exposures, stabilize results over time, and increase capacity to write business without exceeding regulatory limits. The policyholder's contract remains with the ceding company, which remains fully responsible for paying claims under its policies.
National insurance concept
Buying an insurance policy to shift the financial burden of a possible loss to the insurer is an example of which risk management technique?
Risk transfer — Insurance is the primary form of risk transfer: the economic consequences of a possible loss are shifted from the insured to the insurer in exchange for a premium. Transfer does not change the chance of loss; it changes who bears the financial impact. It is one of the five recognized risk management techniques, alongside avoidance, retention, sharing, and loss reduction.
National insurance concept
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