Pure risk is a risk that can only result in losses. This term is used to differentiate between speculative risks that are taken for a chance of a gain and risks that are inherent in a situation but are never positive. The following are illustrative examples of a pure risk.
Health & SafetyThe chance of a disease or injury. This can be a business risk such as the risk that a poorly designed product will injure people. It can also be a personal risk such as the chance that you will get a disease.
FireThe probability of a fire that causes injury, loss of life and damage to property.The probability of unusually bad weather. This can cause losses for farmers and businesses.
DisastersThe probability of a disaster such as an earthquake or hurricane.
CrimeThe probability that you will be a victim of crime such as a theft.
AccidentsThe probability of an accident such as a car accident.The risk of political instability that impacts the normal functions of a society. For example, a corrupt government that is unable to sustain basic services such as electric power grids.
WarThe probability of a conflict between nations that causes loss of life, instability and potentially catastrophic damage.The risk of large scale failures or problems that threaten life at the planetary scale such as a sudden change in climate.
NotesTraditionally, insurance companies only insure pure risks. Speculative risks are taken to achieve opportunity such that insuring them doesn't usually make sense. However, products do exist to hedge against certain types of speculative risk such as exchange rate risk.Pure risk is the most likely type of risk to impact individuals who mostly avoid speculative risk if they don't invest or own a small business.Some definitions of pure risk suggest that they are inherently beyond human control. This is clearly not true as fire, diseases and injury can often be prevented or mitigated.
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