What is the essential outcome of risk transfer in insurance?

The essential outcome of risk transfer in insurance is financial coverage for the insured. When individuals or businesses purchase insurance, they are essentially transferring the financial burden of potential losses to the insurer. This means that in the event of a covered claim, the insurer will provide compensation or coverage for the losses incurred, thereby alleviating the financial impact on the insured.

This arrangement allows the insured to manage risk more effectively because they know that they have financial support to cover significant expenses that might arise due to accidents, health issues, or other covered events. The core purpose of insurance is to offer this safety net, enabling the insured to face uncertainties with peace of mind, knowing they will not bear the full financial consequences alone.

While the other options each touch on different aspects of insurance, they do not capture the primary function of risk transfer as effectively. For instance, increased liability for the insurer refers to the potential for greater financial responsibility the insurer assumes, while retained ownership of risk suggests that the insured still carries some level of risk, which is not the goal of transferring risk. Lastly, reduced risk for the insurer is not the main intent behind providing coverage; rather, the insurer aims to manage and mitigate risk through diversification and premium collection.