What term best describes transferring risk from insured to insurer?

Transferring risk from the insured to the insurer is best described as indemnity. The concept of indemnity refers to the agreement where one party (the insurer) compensates the other party (the insured) for losses or damages incurred, effectively shifting the financial burden of risk. This allows the insured to pay a premium in exchange for protection against certain losses, ensuring that they are not liable for the entire financial impact of those losses.

Indemnity is a core principle in insurance, as it helps to provide peace of mind to insured parties, knowing that their potential losses will be covered. This mechanism of risk transfer is essential to the functioning of insurance policies in their role as financial safety nets.

In contrast to the other terms listed, which relate to different concepts in insurance, indemnity specifically addresses the transfer of risk. Subrogation involves the insurer seeking reimbursement from a third party after they have paid the insured. Risk pooling refers to the aggregation of similar risks to distribute the potential payout among many insured parties. Retention signifies the decision to keep a portion of risk rather than transferring it, which is contrary to what is occurring in this scenario.