There are three types of hazards: Physical Moral Morale The characteristics of insurable risks that make Solution for Risks that are insurable because their probabilities can be calculated precisely enough for the risk to be quantified. Thus, a potential loss cannot be calculated so a premium cannot be established. The loss must be accidental or random and unintentional. Non-insurable risks are type of risks which the insurer is not ready to insure against simply because the likely future losses cannot be estimated and calculated. Normally the pure risk is insurable and speculative risk is handled by methods other than insurance. Speculative risk C. Equity risk D. Investment risk All speculative risks are undertaken as a result of a conscious choice. Speculative risk is a category of risk that can be taken on voluntarily and will either result in a profit or loss. The loss must be determinable and measurable. I. Which type of risk is gambling? Betting on sports is also considered a speculative, controllable risk. An example of speculative risk is the pricing of stock of a company, which is speculative and unmeasurable. Speculative (dynamic) risk is a situation in which either profit OR loss ispossible The outcome of such speculative risk is either beneficial (profitable) or loss. This type of risk doesn’t have a predictable outcome. Pure risk Risk transfer Risk pooling Suffering loss through speculative risk can be avoided simply by avoiding the actions that allow for it. Gambling is an example. Speculative risks are very common in business undertakings. Insurance involves the transfer of insurable risk while hedging handles risk that is typically uninsurable. Pure risk, also known as absolute risk, is insurable. Which type of risk is most likely to be insurable? Therefore, the authors of risk management have differentiated between pure risk and speculative risk. A hazard increases the chance that loss will occur. describe a situation where there is a possibility of loss or gain the activities generating such risk are usually undertaken in the hope of gain for this reason and unlike the pure risk the speculative Download the Bayt.com Mobile App for FREE. II. Insurance companies do NOT work with speculative risk, meaning insurance is only available to cover pure risk. So you are getting large claim events often and only people likely to make claims wanting to buy the insurance coverage. risk of fire as an Insurable Risk as indicated in the following figure 2.1 ... • Gambling creates a new speculative risk • Gambling is not socially productive ,because The winner’s gain comes at the expense of the loser • Gambling generally never the loser to his former financially position . Speculative risk is a situation that holds out the prospects of loss, gain, or no loss no gain (break-even situation). Pure risk is the only insurable risk Speculative risk is the only insurable risk An example of pure risk would be a legal wager Pure and speculative risks are both insurable. It holds the prospect of gain as well as loss. Actually from the basic viewpoints of insurance only pure risks are insurable speculative risk is not . Therefore, speculative risks are not insurable in most cases. Pure risk B. Speculation The term speculative risk has nothing to do with speculation except that speculation is one form of speculative risk. Almost all financial investment activities are examples of speculative risk, because such ventures ultimately result in an unknown amount of success or failure. Insurable risk refers to the conditions that are vulnerable to danger of loss to a person or property. The main reason is that it is a high severity with high frequency with adverse selection. 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