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Q1. Define Risk. How risks are categorized?

Ans. Risk is defined in several ways. Traditionally risk is
defined as " exposure to possible loss ". An insurer or
a broker may use the term risk to refer to the insured
or the property which is insured or the cover against
which the insurance is taken. However, in terms of
risk management it is defined as " the variation in
outcomes that could occur over a specified period of
time in a given situation. "

Risks are categorized as 'Objective' risk and ' Subjective'
risk. Objective risk is the risk that exists in nature and is
the same for all persons/entities facing the same situation.
'Subjective' risk is each person's estimate of the objective
risk. The estimate of the risk using the probability
distribution assumed to be correct. ' Pure' risk exists
when there is a chance of loss, but no chance of gain. In
'Speculative ' risk, there is chance of both loss and gain.

Q2. Distinguish between objective and subjective
risks.

Ans. There are different ways to categorize risk. The two

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