Which strategy involves sharing risk with another party, such as through insurance?

The correct answer highlights the concept of risk transference, which refers to the strategy of sharing risk with another party. This is commonly done through contractual agreements, such as purchasing insurance, where the financial consequences of a risk are transferred to the insurer. This means that, in the event of a loss, the burden does not fall solely on the individual or organization that incurred the risk; instead, the insurance company or other third party assumes that responsibility, thereby alleviating some of the potential impact of the risk on the original entity.

This strategy is valuable in financial management and risk management because it allows an organization to protect itself against significant losses that could disrupt operations or jeopardize financial stability. By transference, companies can focus on their core activities without the constant worry of unpredictable financial setbacks.

In contrast, risk deterrence, risk acceptance, and risk mitigation have different focuses. Risk deterrence aims to reduce the likelihood of risk through proactive measures, risk acceptance involves acknowledging the risk and deciding to live with it without seeking to reduce it, and risk mitigation refers to implementing actions to minimize the impact or likelihood of a risk occurring. Each approach addresses risk in its own unique way, but risk transference specifically emphasizes sharing or shifting the responsibility for potential losses to