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An external risk is a risk that is fully beyond your control. The following are the common types of external risk with examples.Disaster RiskThe insurance industry defines external risk as the risk of disasters that are beyond the control of a policy holder such as earthquakes, wildfires, floods and pandemics.
Act of GodAnother term for disasters of a non-human cause such as a volcanic eruption.Force majeure is a major adverse event such as a disaster. This potentially includes human caused disasters such as a war but definitions vary by jurisdiction.Environmental HazardsThe potential for an environmental disaster such as very low air quality that threatens the health and safety of large populations.
Infrastructure RiskThe potential for major infrastructure disruptions beyond your control such as an event that causes large scale internet outages.Political RiskThe potential for political disruptions such as a revolution, strike or protest.Economic RiskLarge economic risks such as the potential for a recession or depression. Predictable economic risks such as exchange rate fluctuations aren't considered external as these can be mitigated.
Project RiskProjects often define external risks as anything beyond the capacity of the project to mitigate. For example, a merger or acquisition might derail a project but be well beyond the control of the project.NotesThe insurance industry and contract law have a narrow definition of external risk that is often synonymous with Act of God.Any risk that can be mitigated by you isn't external. For example, a predictable level of weather risk whereby you should reasonably expect it could rain and plan accordingly.|
| Type | | | Definition | A risk that is fully beyond your control. | | Related Concepts | |
Risk
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