Risk Transfer (Research Paper Sample)

Risk Transfer
Student’s Name
University Affiliation
Introduction
Business organizations usually rely on vital relationship with vendors, contractors and also the consumers. During these relationships, various agreements are usually made. In additions, the parties involved usually negotiate on written contracts (Culp, 2013). Taking this into consideration, a growing trend is involving contracts where one party agrees to take the liabilities of the other party. Many business owners all over the world recognize the importance of transferring their potential risks to another company. On this, these companies usually negotiate various contracts for their own advantage. Nevertheless, what does this mean when it comes to the bottom line of the business? Agreeing to take the responsibility of another person can be significantly costly at times. Bearing this in mind, signing such contracts implies that someone may pay the claims that are beyond his or her responsibility (Banasiewicz, 2009). Looking it at another angle, an organization may ask its vendors to a sign a specific agreement for the purpose of protecting the business in case of a risk. In both cases, both the contracting parties must put into consideration proper understanding of the limit surprises. For instance, it is crucial for the agreement to clearly define which party covers the liability of the other. This helps in preventing conflicts between the contracting parties (Culp, 2013). With regard to this paper, I tend to focus on Walmart, the largest retailer all over the world. On this, the paper will focus on the risk transfer of the company, putting into consideration specific risks, and the best risk transfer response.
Risk Transfer
Risk transfer refers to a risk management as well as control strategy that take into account the contractual shifting of a risk from one contracting party to another (Culp, 2013). A good example of risk transfer is the purchase of insurance policy through which a certain risk of loss get passed from the policy holder to the person or organization insured. When conducted in the right and effective manner, risk transfer typically allocates risk on equitable basis. This implies that it places the responsibility of risk on the parties designated in accordance with their ability to control, as well as insure against that specific risk. Therefore, it is rational for the liability to rest ideally with the party that has more control when it comes to sources of potential liability (Culp, 2013). Taking Walmart into consideration, it usually controls the type as well as magnitude of the liabilities that it assumes (Olson & Wu, 2008). Again, when legally possible, the organization usually identifies various opportunities for the purpose of managing various risks through having other parties assuming their share of liability contractually.
Through effective management of liabilities by Walmart, the company is able to save a lot of money. This is possible as the company is able to lower its overall costs, therefore helping in keeping the company competitive in the global marketplace. When it comes to Walmart, risk transfer is usually accomplished through two main methods. These are insurance and contracts. Risk transfer in most situations is usually accomplished through insurance policy (Culp, 2013). Taking this into consideration, Walmart also embraces the insurance when it comes to protecting to protecting the company against various risks. Insurance takes into account a voluntary arrangement between two different parties. These are the policy holder and the insurance company. On this, the insurance company normally assumes financial risks which are strictly defined from the policy holder. This implies that if a worker gets injured, the insurance company has to pay the cost. Again, in case of fire, the insurance company has to pay and replace the burnt building. Insurance companies usually an insurance premium or a fee because of accepting to take the risk (Olson & Wu, 2008). The amount paid to the insurance company by the policy is dependent on various factors, including the probability of risk occurring (Banasiewicz, 2009). In addition to this, there are various reserves, deductibles, reinsurance, as well as other financial agreements which modify the financial risk that the insurance company has to assume.
Contracts involve non-insurance agreements through which risk transfer can be accomplished. In most cases, these contracts normally include indemnification provisions (Olson & Wu, 2008). An indemnity clause for this matter refers to contractual provision where one of the contracting parties agrees to take the responsibility of either specified or unspecified liability that the other party might incur (Banasiewicz, 2009). Typically, indemnification agreements are fully independent of insurance coverages. Moreover, they transfer the financial repercussions of the legal liability from one contracting party to another. Again, in addition to the direct financial loss of the organization, some contracts transfer the legal defense, as well as product recall costs (Culp, 2013).
There are several specific risks that are confronting Walmart calling the company to put specific measures in order to share the risk, for the purpose of ensuring that the company does not land into significant challenges in case of occurrence of such risks. The major specific risks confronting Walmart include fire, injury of workers, terrorism and theft.
Fire
Fire as a risk can lead to significant losses if it occurs in a business that has not shared the risk. It has been witnessed in many organizations where fire causes mass destruction to business premises, as well injuries to employees. Taking this into consideration, there is needs to transfer the risk for the purpose of making the business continue to be stable in case of fire (Culp, 2013). Fire insurance policy is a common response to fire risks in many organizations all over the world. Similarly, Walmart embraces fire insurance policy to protect its premises against fire. Fire insurance policy usually covers damage to all the properties caused by fire. This form of insurance usually goes beyond property insurance policy to cover the damage to the building itself and also and also damage to the nearby structures and personal properties. In addition, it also covers the expenses related to not being able to use the property when damaged (Olson & Wu, 2008). With this form of insurance cover, Walmart is on the safe side as it can be compensated in case one of its buildings catches fire. Despite the high premium costs, the company is assured of continuity as well as stability in case of fire.
Injury of workers
Just like any other business setting, workers in Walmart may get injured when in the line of duty. This becomes a risk as the company has to compensate for that person in terms of medical treatment or compensation in case of death. Taking this into consideration, Walmart embraces Workers compensation. This is a type of insurance that provide wage replacement as well as medical benefits to the employees injured while in the line of duty. This usually comes in exchange for compulsory relinquishment of the right of the employees to sue the employers for negligence. This implies that failure to insure the employees by the company can lead to significant losses, and other related problems including the company being sued by its employees in order to compensate them.
Theft
Theft as a risk takes into consideration all acts of stealing (Culp, 2013). Walmart being a retailer with large chains of supermarkets and departmental stores is highly susceptible to theft. On this, this risk ranges from shop lifting to burglary. Despite the fact that some of theft cases cause insignificant loss to the companies, there are others which can lead to a substantial loss. Taking this into consideration, the company has taken risk transfer measures for...