In risk financing, the term for moving loss exposure to another party, such as an insurer, is known as

In risk financing, the term for moving loss exposure to another party, such as an insurer, is known as

• A. Retention
• B. Transfer
• C. Funding
• D. Exposure

Answer: (B)

Transferring loss exposure to another party is risk transfer. In risk financing, buying insurance shifts the financial consequences of certain losses from the insured to the insurer in exchange for a premium. This is how the organization moves risk off its own books. Retention means keeping and paying for losses yourself; funding refers to how losses are paid (from reserves, current funds, etc.); exposure is simply the potential for a loss. So the act of moving that exposure to another party is transfer.

Transferring loss exposure to another party is risk transfer. In risk financing, buying insurance shifts the financial consequences of certain losses from the insured to the insurer in exchange for a premium. This is how the organization moves risk off its own books. Retention means keeping and paying for losses yourself; funding refers to how losses are paid (from reserves, current funds, etc.); exposure is simply the potential for a loss. So the act of moving that exposure to another party is transfer.