Along with analyzing risk, a risk manager’s core function is to offload as much risk as possible as cost-effectively as possible. While meeting this goal is generally thought of as assembling the right insurance portfolio at the best price, transferring risk by contract with a business partner or subcontractor is an often-overlooked alternative that can save a good deal of money and offer sound protection when done right.
Below, we consider the advantages—and some pitfalls—of transferring risk via traditional contract, vs. transferring risk via insurance.
Risk Transfer through Contract
An indemnity contract—or an indemnity provision within a more comprehensive contract—functions as one way in which a party can transfer its risk. To be sure, many insurance policies also qualify as indemnity contracts. However an indemnity agreement also may stand alone, apart from insurance. An ind…