Types of risk Flashcards
Financial
Financial risks are the risks where the outcome of an event (i.e. event giving birth to a loss) can be measured in monetary terms. The losses can be assessed and a proper money value can be given to those losses, such as car crashes/repairs. This is most commonly demonstrated where, by virtue of utmost good faith, an individual seeking motor insurance will relay the current market value of their vehicle to their broker when their policy is being set up.
Non-Financial risks
Non-Financial risks are risks wherein the outcome cannot be measured in monetary terms. This could include situations where, while a monetary figure can be assigned, it does not accurately represent the value of the insured item so far as the policyholder is concerned. Examples of this are often old family heirlooms which are not quite antiques that, if stolen, have a much smaller monetary value than sentimental one.
Pure Risk
Pure risks are those risks where the outcome shall result into loss only or at best a break-even situation so there is no chance of a profit occurring. We cannot think about a gain-gain situation. Examples of these include, but are not limited to, the various types of thefts.
Speculative Risks
Speculative risks are those risks where there is the possibility of gain or profit. At least the intent is to make a profit and no loss (although loss might ensue), such as gambling.
Fundamental Risk
Fundamental risks are the risks mostly emanating from nature. These are the risks which arise from causes that are beyond the control of an individual or group of individuals, such as high magnitude earthquakes, tsunamis, volcanic eruptions etc.
Particular Risk
Particular risks usually affect sole individuals or small groups. An example would be if a person has some personal property stolen which will only effect them, such as their clothing or resources. Essentially a particular risk relates to localised thefts.
Earthquake, volcanic eruption and Tsunami are examples of
Fundamental risks.
Something which cannot be measured in monetary terms such as sentimental value is an example of
Non financial risk.
Can a speculative risk be insured?
NO.
