What does risk transfer involve?

Risk transfer involves shifting some or all of the financial consequences of a risk to another entity. This is often achieved through mechanisms such as insurance, where the insurer takes on the risk in exchange for premiums. By transferring risk, an organization can protect itself from substantial financial losses that could arise from unforeseen events, thereby maintaining stability and continuity in its operations.

This approach is part of a broader risk management strategy that seeks to minimize the impact of potential hazards by leveraging other organizations' capabilities to absorb risk. Risk transfer is particularly useful when risks are too large for an entity to bear alone, or when it is more cost-effective to pay for coverage than to manage the risks internally.

The other options relate to different aspects of risk management. Eliminating the source of a risk refers to risk avoidance, accepting all consequences signifies risk acceptance, and implementing controls to mitigate damage highlights risk reduction strategies. Each of these has its own place in a comprehensive risk management framework but does not specifically pertain to the concept of transferring risk to another party.