Page 289 - IC38 GENERAL INSURANCE

c) Who is affected?

A third way of classifying risks may be provided by considering who is
affected by a particular peril or loss event.

i. Fundamental risks: affect large populations. Their impact is widespread
and tends to be catastrophic.

Examples of fundamental or systemic risks are wars, droughts, floods and
earthquakes and terrorist attacks.

ii. Particular risks: affect only specific individuals and not an entire
community or group. In this case the loss is borne only by particular
individuals and not the entire community or group.

Examples of particular risks are burning of a house or an automobile
accident or hospitalisation following an accident.

Commercial insurance is available to cover both fundamental and
particular risk.

d) Result / Consequence / Outcome

i. Speculative risk describes a situation in which the consequence can be
either a profit or a loss. Typical examples of taking such risk are
gambling on horses or stock market speculation. One assumes such risk
deliberately in the hope of a gain.

ii. Pure risk on the other hand involves situations in which the outcomes
can result only in loss or no loss, but never in gain.

For example, a flood or a fire either occurs or does not occur. If it happens
there is a loss. If it does not happen there is neither loss nor gain. Similarly,
a person may or may not fall seriously ill.

Insurance only applies in case of pure risks, where it protects against loss
that may arise. Speculative risks cannot be insured.

Examples of pure risk:

 Chemical – Fire, Explosion
 Natural – Earthquake, Flood, Cyclone
 Social – Riots, Fraud, Thefts
 Technical – Machinery Breakdown
 Personal – Death, Disability, Sickness

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