Please Wait a Moment
15 June 2010 · Article

THE RISK SHARING MYTH DEBUNKED! Risk Ownership in Commercial Transactions

The issue I want to focus on in this paper is the 'sharing' of risk. It is a simple basic principle that a single risk cannot be effectively shared: one party needs to be ultimately responsible. To explain my point, use the analogy of driving a car: is it safer for one person to take full control of and drive a car or for one person to steer the car and another to operate the pedals? For clarification though, what I am not saying is that a bundle of risks cannot be shared: each risk within the bundle must be owned by one of the parties. Continuing the car analogy, it might be sensible for one person to be responsible for the navigation and for another to be responsible for the driving. When I refer to the party being 'responsible', I mean that that party will suffer the consequences should the risk come to pass. So given the party's exposure to the risk impact, it would be prudent for that party to pro-actively manage the risk. \r

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