That’s correct, Roy, and if the wires at the bottom left were utility incoming, then the Transfer Switch would need to be rated for the same, since it would be supplying the entire main panel, and utility power is running through it.
The diagram you supplied only requires the Trans Sw to be rated for what it’s supplying, which is the best way to do it, but requires a separate “emergency panel”.
I am amazed more linemen aren’t killed by DIY’ers accidentally back-feeding with a 4KW generator. I saw many of these things burnt to the size of a coffee can when utility came back on!
I asked a lineman about that, and what he told me was that while it is always possible for a lineman to get electrocuted, it is not very likely; They ground the wires they work on in case the power comes back on by accident, whether from the utility or from a rogue generator.
The interlock, he said, is as much for the homeowner’s protection as it is for the linemen’s; That way if the power comes on the generator doesn’t go up in flames, like others pointed out.
Also, with an “illegal” generator hook-up, the danger is more to firemen and the public, for the period of time before the linemen get there.
I also talked to a fireman who said two of his colleagues got a serious shock from a downed wire backfed by some knucklehead.