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How insurance works as a transfer system


Insurance is described as a transfer system because it transfers the costs oflosses from a person' a family, or a business to an insurer. The insurer, in tum, pays for covered losses and, in effect, distributes the costs of losses among all insureds. Therefore, insurance is a system of both transferring and sharing the cost of losses.

Insurance buyers can transfer the costs of their losses to insurers by buying insurance'.

Insurance spreads the cost of losses among all insureds by pooling the premiums paid by all insureds and using the money to pay covered losses.

Thethreat of loss ro any single colonist is transferred to the entire group of colonists. The cost of loss to any home is shared by the entire community. This arrangement is similar to insurance, which distributes the cost of losses among all insureds.

What is the role of insurance in risk management


To manage risk, persons or organizations may use retention, avoidance, loss prevention and loss reduction measures, or loss transfer.

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