Insurance focuses on which type of risk?

Insurance primarily addresses pure risk, which involves situations that can result in a loss or no loss, without the potential for a financial gain. Pure risks include events such as theft, fire, accidents, or natural disasters, where the only possible outcomes are negative. Insurance policies are designed to mitigate these risks by providing a safety net for individuals and businesses faced with potential perils that would otherwise impose financial burdens.

In contrast, speculative risk involves the chance of gain as well as loss, such as investing in the stock market or starting a business. Insurance does not cover speculative risks because they are inherently uncertain and involve personal decision-making factors that come with potential gains.

Casualty risk typically refers to risks associated with legal liability and the financial consequences of an accident or injury to others, thus fitting under the broader umbrella of pure risk but not defining the entire scope of what insurance covers.

Market risk relates to the possibility of losing value due to market fluctuations and economic changes, which is not insurable since it deals with investment risks rather than the fundamental losses that insurance is designed to cover. Understanding the distinction between these types of risks clarifies why pure risk is the primary focus of the insurance industry.