Which risk response mode involves transferring risk to a third party?

Which risk response mode involves transferring risk to a third party?

• A. Avoidance
• B. Acceptance
• C. Transference
• D. Mitigation

Answer: (C)

Transferring risk to a third party means shifting the potential impact, cost, or liability of a risk away from you to someone better equipped to handle it. In practice this is done through tools like insurance, contracts, or outsourcing agreements where another party assumes responsibility for the risk. The goal is that if the risk materializes, the financial or operational consequences fall on the party that has the obligation or capability to absorb them. This contrasts with avoiding the risk by not engaging in the activity, mitigating the risk by reducing its likelihood or impact, or accepting the risk and bearing the consequences yourself. A clear example is purchasing insurance, where the insurer takes on the financial cost if a covered event occurs.