“Insurance is a well-known risk sharing strategy. It is normally used for physical assets and a limited range of commercial risks, particularly for the low probability but high impact residual risks that may remain after other risk treatment actions have been implemented. Sharing a risk with another party will usually incur a cost, for example an insurance premium, which provides a direct measure of the cost of sharing the risk. It should be noted that an insurance contract, like most contracts, is also a process that transforms the risk into something different: in this case, the insured party now has a credit risk that the insurer will not pay the full amount of a claim or will delay payment. Insurance is particularly relevant to the management of ‘residual’ risks, where active risk prevention and mitigation measures have been implemented. The remaining variability is a prime candidate for insurance. Some government entities do not insure their risks as a matter of policy. This policy is based on the premise that the Government has the size and consequent capacity to meet losses as and when they arise, and government contracts with suppliers should not normally involve the Government insuring assets or risks. Policies of this kind are changing as governments move towards more transparent accounting processes and user-pays principles. Purchasing organizations frequently require their suppliers to have insurance policies in place to cover risks that properly belong to the supplier. These may be policies to cover specific physical risks, such as damage to goods in transit, or more general risks, such as professional indemnity. Responses such as insurance, or the inclusion of liquidated damages clauses in contracts, transfer at least part of the burden of risk to another party. The payment of a claim may also be regarded as mitigating the impact of the risk, although it frequently does little to avoid the risk in the first place. However, liquidated damages clauses may provide a powerful incentive for contractors or suppliers to implement and maintain their own risk management programmes. Many risk sharing strategies for projects or procurements require decisions to be taken at very early stages, usually in the pre-tender phases.” — Project Risk Management Guidelines: Managing Risk in Large Projects and Complex Procurements by Dale F. Cooper, Stephen Grey, et al. https://a.co/2J4FFIe