How is the term risk defined in the context of insurance?

In the context of insurance, risk is defined as the uncertainty regarding financial loss. This definition captures the core of what insurance is designed to address. Insurance is fundamentally a tool for managing risk — it provides financial protection against the possibility of unexpected events that can lead to a loss.

Insurance companies assess risk by evaluating various factors that could lead to a claim, such as the probability of an event occurring and the potential financial impact of that event. By pooling the premiums from many policyholders, insurers are able to cover losses for those few who do experience an event that leads to a claim.

The other options do not accurately define risk in this context. The amount paid for an insurance policy relates to the cost of coverage, not the uncertainty of loss. Evaluating investment portfolios pertains to financial analysis rather than risk in terms of insurance. Similarly, the level of customer satisfaction relates to service quality and user experience, which does not directly involve the concept of risk concerning financial loss.