Risk Transfer

FJ

After a disaster, a household, community, enterprise, or state authority will obtain resources from the other party in exchange for ongoing or compensatory social or financial benefits provided to that other party, formally or informally shifting the financial consequences of particular risks from one party to another. This is called risk transfer.

Insurance is a well-known kind of risk transfer in which a risk is covered by an insurer in exchange for periodic premium payments. Risk transfer can take place informally within family and community networks where mutual aid is expected in the form of gifts or credit, as well as formally where governments, insurers, multilateral banks, and other large risk-bearing entities establish mechanisms to help cope with losses in major events. Insurance and reinsurance contracts, disaster bonds, contingent credit facilities, and reserve funds are examples of such arrangements, with premiums, investor contributions, interest rates, and past savings covering the expenses, respectively.

References

  • HG (2020, February 22). Common Terminologies (A-z) Of Disaster Risk Reduction & Management. Humanitarian Global. Retrieved December 6, 2023, from Link

 

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