What is the process of transferring risk from one person or organization to an insurance company called?

The process of transferring risk from one person or organization to an insurance company is referred to as insurance. When an individual or entity purchases an insurance policy, they effectively transfer the financial responsibility of certain risks to the insurance company. In exchange for premium payments, the insurance company agrees to cover specified losses or damages, thus providing a safety net and peace of mind against unforeseen events.

Indemnity, while related to the compensation aspect of insurance, specifically refers to the principle that insurance pays out losses to restore the insured to the financial position they were in prior to the loss, rather than being the transfer of risk itself. Risk management encompasses a broader range of strategies aimed at identifying, assessing, and prioritizing risks, and is not focused solely on transferring those risks to a third party. A deductible is a specific amount that the insured must pay out-of-pocket before the insurance company covers the remaining loss, and it does not represent the transfer of risk itself. Therefore, the term insurance is the most accurate and appropriate term for describing the process of risk transfer to an insurance company.