Concept
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Risk sharing refers to the division of risk among more than one party so as to minimize the impact of loss. Another characteristic is that the risk is shared among those who have similar or equal risk of loss. It differs from insurance, which involves the transfer of risk from one party to another.
In traditional insurance, the associated risk is assumed to be known and, because the risk is known, the insurer can calculate, and therefore charge, a premium which the risk-averse party is willing to pay. Risk sharing differs from traditional insurance products in that the probability of loss is not fully known (as in the case of a new product).
For example, if a client (institution or government) requires a substantial loan from a bank, the bank may approach other banks and request that they assist with the risk by funding a portion of the loan each. This prevents the original bank from taking on the full risk of loss in the event the client defaults on their debt repayments.