Certified Governance Risk and Compliance (CGRC) Practice Exam 2025 - Free CGRC Practice Questions and Study Guide

Risk transference primarily refers to shifting risk to a third party. This concept involves the practice of reallocating the financial consequences of particular risks to another party, typically through mechanisms such as insurance contracts or outsourcing certain operations. By transferring risk, an organization may protect itself from the potential financial burden associated with unforeseen events or losses.

In practice, this might include purchasing insurance policies that cover specific risks (like liability or property damage) or outsourcing business functions to entities that can manage those risks more effectively. The primary advantage of risk transference is not just about managing costs or avoiding risks but ensuring that the financial impact of risks is borne by another party, allowing the organization to focus on its core operations without the constant strain of potential losses from those risks.

The other options do not accurately capture the essence of risk transference. While cost savings, reducing risks, and avoiding risks are important concepts in risk management, they do not specifically define the act of shifting risk to another party, which is the hallmark of risk transference.