Which type of risk is considered insurable?

The concept of insurable risk revolves around the idea of pure risk. Pure risk refers to situations that can only lead to a loss or no loss, without the possibility of a financial gain. This type of risk is essential for insurance because it allows insurers to predict potential losses based on statistical probabilities and to create policies that can protect against those losses. Examples of pure risks include events like accidents, illnesses, or the death of a policyholder.

Insurance functions best when it can effectively manage risks that can be quantified and understood. Since pure risks do not encompass the chance of a gain, they provide a stable foundation for underwriting policies. When insurers assess pure risks, they can pool many such risks together to effectively spread the financial burden and ensure that those affected by loss are compensated fairly.

In contrast, speculative risks involve situations where there is a possibility of gain or loss, such as investing in the stock market or gambling. These scenarios do not fit within the traditional insurance framework, as they do not lend themselves to predictable outcomes.

Natural disaster risk could be insurable if it is framed within pure risk parameters, but on its own, without specific details on how the risk will manifest, it isn't categorized as purely insurable. Managed risk refers to strategies for minimizing