What technique involves the transfer of risk through a two-party contract?

The technique that involves the transfer of risk through a two-party contract is insurance. In an insurance agreement, one party (the insured) pays a premium to another party (the insurer) in exchange for compensation or coverage for specified risks. This contractual arrangement allows the insured to protect themselves against potential financial losses that could arise from uncertain events, such as accidents, natural disasters, or liability claims.

Insurance is based on the principle of risk pooling, where the insurer collects premiums from many policyholders and uses that collective fund to pay for claims made by individuals who experience covered losses. This effectively transfers the financial risk from the individual policyholder to the insurer, thus providing peace of mind and financial protection.

In contrast, the other options represent different concepts in risk management or claims processing. Direct loss claims pertain specifically to the process of asserting a claim for an immediate loss, while risk retention involves assuming responsibility for loss instead of transferring it. Subrogation refers to the process where an insurer seeks to recover costs from a third party responsible for a loss after compensating the insured. None of these options illustrate the concept of risk transfer through a two-party contract in the same way that insurance does.