In risk transfer, which statement best describes the typical arrangement?

In risk transfer, which statement best describes the typical arrangement?

• A. The external supplier or partner takes on the cost
• B. Costs are funded by risk reserve
• C. The organization bears the cost
• D. Costs are ignored

Answer: (A)

Risk transfer means shifting the financial impact of a risk to another party, typically through a contract or insurance. In the usual arrangement, the external supplier or partner assumes responsibility for the cost of specified risks. The organization pays for this transfer—through a service fee, contract price, or insurance premium—but the actual financial burden of the risk event falls on the counterparty. This is how outsourcing, vendor indemnities, or insurance policies reduce the organization’s exposure, even though some residual risk or exclusions may remain defined by the contract.

Risk transfer means shifting the financial impact of a risk to another party, typically through a contract or insurance. In the usual arrangement, the external supplier or partner assumes responsibility for the cost of specified risks. The organization pays for this transfer—through a service fee, contract price, or insurance premium—but the actual financial burden of the risk event falls on the counterparty. This is how outsourcing, vendor indemnities, or insurance policies reduce the organization’s exposure, even though some residual risk or exclusions may remain defined by the contract.