What does risk refer to in insurance terms?

In insurance terms, risk refers to the possibility of a positive or negative outcome. This concept encompasses the uncertainty regarding the occurrence of an event that would result in a financial loss or gain. In the context of insurance, it is primarily associated with the likelihood that a loss will occur, such as accidents, natural disasters, or other insurable events.

The term "risk" is foundational to how insurance operates, as insurance companies assess and price these uncertainties to determine premiums and coverage options for policyholders. For instance, some risks are considered higher than others based on various factors, influencing the cost of insurance premiums and the types of coverage that are available for different individuals or properties.

In summary, risk embodies the dual nature of potential outcomes—both the potential for loss and, in some contexts, the potential for gain—which is essential for understanding the mechanisms of insurance and the underwriting processes involved.