Which term describes the technique of shifting risk to another entity?

Which term describes the technique of shifting risk to another entity?

• A. Risk Transfer
• B. Segregation
• C. Separation
• D. Speculative Risk

Answer: (A)

Shifting risk to another party is risk transfer. In risk management, transferring risk means the potential financial loss is borne by someone else, usually through insurance, contractual indemnities, or outsourcing arrangements. For example, buying an insurance policy transfers the chance of a large out-of-pocket loss to the insurer in exchange for a premium. This distinguishes risk transfer from segregation or separation, which are about dividing assets or activities to limit exposure without changing who ultimately bears the risk. Speculative risk is a type of risk that involves uncertain outcomes with both upside and downside, not a method of handling risk.

Shifting risk to another party is risk transfer. In risk management, transferring risk means the potential financial loss is borne by someone else, usually through insurance, contractual indemnities, or outsourcing arrangements. For example, buying an insurance policy transfers the chance of a large out-of-pocket loss to the insurer in exchange for a premium. This distinguishes risk transfer from segregation or separation, which are about dividing assets or activities to limit exposure without changing who ultimately bears the risk. Speculative risk is a type of risk that involves uncertain outcomes with both upside and downside, not a method of handling risk.