What aspect of risk management does risk transference involve?

Risk transference involves shifting the responsibility for a risk to another party, which is most commonly achieved through the purchase of insurance. By transferring risk in this manner, an organization can protect itself from potential financial losses associated with specific risks, as the insurance company assumes some or all of the financial responsibility if a claim arises from that risk. This strategy allows companies to manage their overall risk exposure while ensuring they have coverage for unexpected events.

In the context of risk management, using an insurance policy to transfer risk is particularly effective for financial risks that could otherwise have a severe impact on an organization's balance sheet. This enables companies to focus on their core operations without being overly burdened by the financial implications of potential risks.