Which class of risk includes natural disasters like earthquakes?

The correct answer is the class of risk known as physical risk. Physical risk encompasses the potential for loss or damage to property and assets as a result of natural events. This includes natural disasters such as earthquakes, floods, hurricanes, and other environmental hazards that can cause significant harm to buildings, infrastructure, and personal belongings.

Physical risk is particularly important in fields like insurance and risk management, where understanding the potential for such losses is crucial for assessing coverage needs and pricing policies. For example, insurers must consider the likelihood and potential severity of earthquake damage when underwriting policies in regions prone to such events.

In contrast, operational risk refers to losses due to failed internal processes, systems, or policies, which are unrelated to natural disasters. Market risk deals with financial loss due to market fluctuations affecting investments and portfolios, while credit risk concerns the potential for loss when a borrower defaults on a financial obligation. Each of these categories addresses different aspects of risk, making physical risk the most relevant choice regarding natural disasters like earthquakes.