Q 19. It is defined as the equitable transfer of the risk of a potential loss, from one
entity to another, in exchange of a reasonable fee. Identify the concept and
elucidate its principles. [ 6 Marks]
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What Is Transfer of Risk?
A transfer of risk is a business agreement in which one party pays another to take responsibility for mitigating specific losses that may or may not occur. This is the underlying tenet of the insurance industry.
Risks may be transferred between individuals, from individuals to insurance companies, or from insurers to reinsurers. When homeowners purchase property insurance, they are paying an insurance company to assume various specific risks associated with homeownership.
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