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How Is Risk Transfer Accomplished?
by 趙永祥 2019-02-25 06:38:24, Reply(0), Views(179)

How Is Risk Transfer Accomplished? 

How Is Risk Transfer Accomplished? 


Insurance Risk transfer is most often accomplished through an insurance policy. This is a voluntary arrangement between two parties, the insurance company and the policyholder, where the insurance company assumes strictly defined financial risks from the policyholder. In very simple terms, if a worker is injured, the insurance company pays the cost. If a building burns down, the insurance company pays to replace it. 

Insurance companies charge a fee, or an insurance premium, for accepting this risk. In addition, there are deductibles, reserves, reinsurance and other financial agreements that modify the financial risk the insurance company assumes. Contracts Risk transfer can also be accomplished through non-insurance agreements such as contracts. These contracts often include indemnification provisions. 

An indemnity clause is a contractual provision in which one party agrees to answer for any specified and unspecified liability or harm that the other party might incur. An indemnity clause also can be termed a hold-harmless or save-harmless clause. Indemnification agreements are completely independent of insurance coverages and transfer the financial consequences of legal liability from one party, the indemnitee, to another, the indemnitor. In addition to direct financial losses, some contracts may also transfer legal defense or product recall costs.

Layers of Protection 

There are several ways to provide layers of protection for your assets, including: 

• Certificates of insurance. 
• Additional insured status. 
• Indemnification provisions in contracts and leases.


Written by Dr. Chao Yuang Shiang (趙永祥 博士)

 Faculty, Dep. of Finance, Nan Hua university

 (南華大學財務金融學系暨財務管理研究所 專任助理教授)

 25- February- 2019