What does pure risk refer to?

Pure risk specifically refers to situations that can only result in a loss or no change, meaning there is no potential for financial gain. This type of risk is distinct from speculative risk, which encompasses situations that may result in either profit or loss. In the context of insurance, pure risks are typically insurable because they involve uncertain events that can lead to loss, such as damage to property, illness, or liability claims.

Understanding this concept is essential for those studying insurance, as it aids in determining which risks are appropriate for insurance coverage. The focus on loss or no change sets pure risk apart from other types of risks, which may allow for gains, thereby making it a fundamental principle within the insurance industry.