In terms of risk transfer, which statement correctly describes the mechanism?

• A. Risk Retention
• B. Risk Transfer
• C. Risk Avoidance
• D. Self-insurance

Answer: (B)

Transferring risk means shifting the potential financial consequence of a loss from your organization to another party that can absorb it more easily. The typical way this happens is through insurance or contractual agreements: you pay a premium, and the insurer covers claims, so the risk is handled by someone else rather than by you. This is why this option is the best description of the mechanism.

Other approaches describe what happens if you don’t shift the risk at all: retaining risk keeps the potential losses on your own books; avoiding risk means not engaging in the activity that creates risk; and self-insurance is essentially funding losses yourself without involving a third party. In the context of a California alarm company, transferring risk through liability insurance or indemnity provisions is the standard way to protect against claims and losses.