What is the potential outcome of transferring a risk?

When transferring a risk, the fundamental principle is that the responsibility and potential consequences associated with that risk are taken on by another entity. This process is often accomplished through mechanisms such as insurance, contracts, or other arrangements where the original policyholder cedes the burden of that risk.

Transferring a risk does not eliminate it entirely, nor does it ensure that costs will be reduced; rather, it shifts the focus of accountability to a third party. It is important to note that while the new entity assumes the risk, the original policyholder needs to understand that certain liabilities or responsibilities may still rest with them, depending on the terms of the transfer.

Thus, the correct understanding of transferring a risk centers on the idea that another party becomes responsible for the management and potential fallout of that risk, allowing the original policyholder to mitigate their exposure and focus on other aspects of their business or personal affairs.