What does risk in insurance refer to?

In the context of insurance, risk refers specifically to the chance of financial loss. This concept is fundamental to the insurance industry, as insurance is designed to provide financial protection against unforeseen events that could lead to a loss. When individuals or organizations purchase insurance, they are seeking to mitigate the financial impact of potential risks that could result in losses—such as accidents, natural disasters, liability claims, or other unexpected occurrences.

Understanding risk in this way emphasizes the insurer's role in assessing the likelihood of these events happening and determining how to price coverage appropriately. This assessment helps to ensure that the insurer can stay financially viable while providing compensation to policyholders when covered losses occur. Thus, defining risk as the chance of financial loss accurately captures the essence of what insurance is all about: protecting against uncertain financial pitfalls that might occur in the future.