What does "risk-sharing" involve?

Risk-sharing involves distributing the financial consequences of risk among multiple parties rather than allowing a single entity to bear the entire burden. This approach can take various forms, such as partnerships, insurance policies, or contractual agreements where the responsibilities and potential impacts of risks are divided. By sharing risks, organizations can enhance their risk management efforts and reduce the potential negative financial impact on any one entity.

For example, in business contexts, companies might collaborate on projects and mutually agree to share the associated risks, which can lead to more significant opportunities and innovation without placing undue strain on a single organization. This strategy fosters collaboration and allows for a more balanced approach to risk management, making it manageable for all involved parties.