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)

Risk transfer is the act of shifting the financial consequences of potential losses to another party, commonly through insurance. By purchasing an insurance policy, you pay a premium to have the insurer bear the cost of covered losses, reducing your own financial exposure. This doesn't eliminate the risk entirely—there are limits like deductibles, policy exclusions, and coverage caps—but it moves the financial burden to the insurer.

This fits the scenario because the key idea is allocating risk to a third party, typically via an insurance contract. Other options describe different approaches: risk sharing involves distributing risk among multiple parties rather than transferring most of it to a single external entity; risk mitigation focuses on reducing either the likelihood or impact of the risk; and risk response is the broad category that includes transfer along with avoidance, mitigation, and acceptance.