Glossary definition: Risk Financing

Risk Financing: Strategies for Managing Financial Loss

Risk financing is a type of financial management strategy used to protect an organization from the financial impact of losses due to risks. It involves a combination of risk transfer, risk retention, and risk control measures to manage the costs associated with potential losses. Risk transfer is the process of transferring the financial responsibility of a risk to another party, such as an insurance company. Risk retention is the process of keeping the financial responsibility for a risk within the organization, such as through self-insurance or a risk pool. Risk control is the process of implementing measures to reduce the likelihood of a risk occurring. Risk financing also includes the use of financial instruments, such as hedging, to manage the financial impact of risks.