What is Risk? How to Manage Risk?
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Photo by Markus Winkler on Unsplash Author: Andrew Lee About 2 minutes read. In Insurance world, risk are categorized into speculative risk and pure risk. Speculative risk means you have a chance of gain, however, pure risk only has a chance of loss. Consider speculative risk is like going to Casino to gamble, you could win or lose, and pure risk is like the chance of getting sick or hit by a bus. Generally speaking, Insurance only insures pure risk . Hazard is either a physical event/behavior that could increase the risk such as smoking or a fire hazard. It could also be a moral hazard due to dishonesty, or morale hazard for careless (e.g. mindset of I don't care because I am insured). Basically, insurance company applies the Law of Large Numbers along with other elements to see if something is insurable such as "due to probability", measurable and definite on the loss, statistically predictable, not catastrophic (e.g. pretty much your insur...