What is the process of transferring risk to an insurance company called?

Transferring risk to an insurance company is known as insurance. When individuals or businesses purchase insurance policies, they are essentially shifting the financial burden of certain risks to the insurer. This process involves paying premiums to the insurance company, which in return agrees to provide compensation for covered losses. By doing so, the insured parties gain peace of mind, knowing that they are protected against unexpected financial hardships that may arise due to specific risks, such as accidents, theft, or natural disasters.

In this context, insurance functions as a risk management tool, allowing individuals and organizations to mitigate potential losses and stabilize their financial situation. The arrangement provides a safety net against unexpected events, making it an essential part of financial planning and risk management strategies.

The other options describe different concepts related to risk and insurance but do not accurately define the process of transferring risk to an insurer. Assumption involves accepting a risk without transferring it to another party. Hedging refers to strategies employed primarily in financial markets to offset potential losses, often through derivative contracts. Endorsements are modifications or additions to an existing insurance policy that change the coverage or terms, rather than the fundamental process of risk transfer itself.