I.A · Basic Insurance Concepts and Principles
Pure risk vs. speculative risk
Risk means uncertainty about loss: the chance of loss. There are two kinds.
Pure risk: only two outcomes, loss or no loss. There is no chance of gain. Examples: illness, death, a car accident, a fire. Insurers cover pure risks.
Speculative risk: you might win or you might lose. Examples: buying stock, running a casino, trading futures. Insurers do not cover speculative risk.
Key idea: risk can never be eliminated completely; it can only be managed (see the five STARR methods).
Remember
· Only pure risk is insurable.
· Speculative risk = chance of gain or loss (stocks, gambling).
· Risk = chance of loss = uncertainty.
Study as cards ›Hazard → peril → risk → loss ›All study notes
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