What is the primary method used to transfer a risk to another party?

The primary method used to transfer a risk to another party is through an insurance policy. An insurance policy is a contract between an insurer and an insured, where the insurer agrees to take on specific risks in exchange for a premium paid by the insured. This mechanism effectively allows the insured to reduce their exposure to potential losses associated with certain risks, such as damage to property or liability claims.

An insurance policy serves to provide financial protection and peace of mind, ensuring that, in the event of a covered loss, the policyholder can receive compensation for their losses. This function of transferring risk is foundational in the field of insurance and is what distinguishes it from other potential options, such as contractual agreements or risk assessments.

While contractual agreements can involve parties assuming certain risks, they do not inherently transfer risk in the way that an insurance policy does. Risk assessment involves identifying and evaluating potential risks but does not directly transfer those risks. A deductible arrangement pertains to the portion of a loss that the policyholder must pay before insurance coverage kicks in, but this is a component of risk management rather than a method of risk transfer itself. Thus, an insurance policy is distinctly the primary means of transferring risk from one party to another.