A risk management technique via which risk is transferred to a third party is known as risk transfer. In effect, one party assumes the liabilities of another. A common example of risk transfer is the purchasing of insurance – this involves the transfer of risk from an entity or individual to an insurance company.

1. ROB TOLLEY
LONDON
CEO and Co-Founder of Global Specialty Underwriters
What Is Risk Transfer and What Are Its
Benefits?

2. What Is Risk Transfer and
What Are Its Benefits?
A risk management technique via which risk is transferred to a third party is known
as risk transfer. In effect, one party assumes the liabilities of another. A common
example of risk transfer is the purchasing of insurance – this involves the transfer
of risk from an entity or individual to an insurance company.
What Are the Methods of Transferring Risk?
Insurance policies are one method of transferring risk. Should the risk event occur,
the insurance company that has provided the policy will assess its causes and
attendant losses to determine the compensation to be paid (or otherwise) to the
policy holder.
Adding an indemnification clause to a contract is another method whereby risk
can be transferred. Insurance specialists such as Rob Tolley (former London
broker) understand that such clauses ensure that the other party provides
compensation regarding potential losses suffered by the entity or individual.

3. What Is Risk Transfer and
What Are Its Benefits?
Derivatives are financial products that take their value from an underlying asset.
Organisations can use these products to hedge against specific financial risks. For
example, a company could purchase a derivative with a view to protecting itself
from financial risks connected with changes to currency exchange rates.
Finally, as a method of risk transfer, outsourcing allows an entity to transfer risk to
a third party that is dealing with a process or project. Should the risk event occur in
the process of execution, this external party bears the responsibility for the losses
– meaning that the organisation is saved from an unplanned expense.

4. What Is Risk Transfer and
What Are Its Benefits?
To establish an effective risk transfer strategy, organisations should focus on a few
key areas. The first of these involves certificates of insurance, which should be
required from tenants, subcontractors, service providers and other parties.
Accepting these certificates only from the relevant insurance company or agent
can protect against being presented with a false document.
Additional insured status could also be requested from tenants, subcontractors,
service providers and other parties. This can act as a safety net in the event that
indemnity provisions are unenforceable.
It’s important to carefully consider contracts that others are asked to sign as part
of a risk-transfer strategy. Written contracts should always be secured, and a
contract or purchase order should include a hold-harmless clause as protection
from the acts or omissions of the other party. This document should also require
that the organisation be named as an additional insured under their general
liability policy.