What it Means

Risk transfer means shifting the financial impact of a risk to another person or organization.

You still face the event (an accident, loss or disaster may occur), but instead of you paying for the loss yourself, another party takes on that financial responsibility under an agreement.

In simple terms, “If something goes wrong, someone else will pay.”

Examples

• Insurance:
• You pay a premium to an insurance company.
• If a covered loss happens (accident, fire, hospitalisation), the insurer pays you or the third party on your behalf.
• Contracts:
• A contractor agrees to take on certain liabilities for damages in a project.
• A logistics company assumes responsibility for goods in transit.
• Warranties / Service Contracts:
• Extended warranty on a product shifts repair or replacement cost from you to the provider.

Why It’s Important

• Protects you or your business from large financial losses.
• Ensures stability and continuity after an accident or disaster
• Allows you to focus on your main activities while the risk is financially covered elsewhere.

How to practice Risk Transfer

• Identify risks that cannot be avoided, prevented or reduced enough.
• Select a transfer method:
• Insurance policies (life, health, motor, property, liability).
• Contracts with indemnity or “hold harmless” clauses.
• Pay the cost (premium or fee) to the other party to take on the risk.
• Understand terms and exclusions so you know exactly what is covered.