Risk transfer can create new risks or modify existing risks. True or false?

Risk transfer can create new risks or modify existing risks. True or false?

• A. False, it cannot affect risk
• B. True, risk transfer can create new risks or modify existing risks
• C. It always eliminates risk
• D. It has no impact on existing risk

Answer: (B)

Transferring risk shifts the financial consequences or responsibility for handling a loss to another party, rather than eliminating the risk itself. Because the hazard is now partly borne by someone else, new exposure can arise and existing exposure can shift. For example, buying insurance reduces the financial impact of a loss but does not cover every risk; gaps in coverage, policy limits, deductibles, or exclusions can leave you vulnerable. Outsourcing a function moves operational risk to a vendor, which reduces your internal risk but introduces vendor/third‑party risk, performance or continuity risk, and dependence on another organization. Contracts can transfer liability, but they also require careful attention to the other party’s solvency, compliance, and whether the transfer terms truly cover all scenarios. In short, risk transfer changes who bears the risk and can create new risks or alter existing ones, so the statement is true.

Transferring risk shifts the financial consequences or responsibility for handling a loss to another party, rather than eliminating the risk itself. Because the hazard is now partly borne by someone else, new exposure can arise and existing exposure can shift. For example, buying insurance reduces the financial impact of a loss but does not cover every risk; gaps in coverage, policy limits, deductibles, or exclusions can leave you vulnerable. Outsourcing a function moves operational risk to a vendor, which reduces your internal risk but introduces vendor/third‑party risk, performance or continuity risk, and dependence on another organization. Contracts can transfer liability, but they also require careful attention to the other party’s solvency, compliance, and whether the transfer terms truly cover all scenarios. In short, risk transfer changes who bears the risk and can create new risks or alter existing ones, so the statement is true.