Which term is used when risk is allocated to another party, commonly via insurance?

Which term is used when risk is allocated to another party, commonly via insurance?

• A. Risk transfer
• B. Risk sharing
• C. Risk mitigation
• D. Risk response

Answer: (A)

Transferring risk to another party means shifting the financial consequences of a loss to someone else, typically through insurance. When you buy a policy, you pay premiums and the insurer agrees to cover specified losses, up to policy limits. This mechanism explicitly moves the potential financial impact from you to the insurer.

This differs from risk sharing, where risk is distributed among multiple parties rather than moved to a single external provider. It also differs from risk mitigation, which focuses on reducing either the likelihood or the impact of a loss through controls, and from risk response, which is the broader set of actions a organization can take to address risk and may include transfer as one option.