Question

why we do not transfer all risks by using insurance?​

Answer 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.

Many people buy insurance in order to gain security and peace of mind. Comprehensive insurance policies can protect our assets, our health, and our loved ones. Insurance contracts function by shifting the risks you face every day to your insurance company

Answer 2

Not all risks are transferable because they have variable severity.

Explanation:

Not all risks are transferable because they have variable severity.

• Since some risks arise regularly but are of low severity and there is no possibility of high severity, they are not transferred through insurance.
• It is not cost-effective to spend a significant amount on insurance premiums to cover the risk of an excessive amount.
• This is because the insurer typically needs a sufficiently high reward to make a profit, which may exceed the estimated impact of the loss for a given time period.
• Covering these risks would be prohibitively expensive as the minimum premium of the insurer would be excessively high.