Insurable and insurable transcript

Insurance is all about covering risk, as there are many things that can go wrong in life. But why are
some risks insurable, while others aren’t?

Let’s imagine you own a shop that sells pastries. There are risks involved in owning a business, but
only some can be covered by insurance.

To start with, we have financial risks, where the risk can be measured financially. You can insure
against the risk of having a window smashed, for example, because the cost of repair can be
accurately estimated. However, the sentimental value placed on your grandma’s baking dish can’t be
measured financially. This would be a non-financial risk, and therefore can’t be insured against.

Risks associated with running a business can be described as speculative risks and pure risks.
Speculative risks involve the potential to make profit. Because a business owner could gain
financially from going into business, this type of risk cannot be insured against. The owner cannot
stand to profit from their insurance policy.

Pure risks can be insured against though, because there is no chance of gaining financially. So a
business owner can insure against the risk of their shop catching fire, as the insurer will simply cover
some or all of the costs of the damage. The business owner can expect to break even at best.
Potential damage to your shop is what’s called a particular risk. If a fire does breaks out, it will likely
only damage your shop, and perhaps one or two surrounding buildings. Insurers can therefore afford
to cover this damage.
Something like war, however, is known as a fundamental risk – a risk so great that insurers couldn’t
meet the potential costs. So if war broke out in your country and your shop was damaged, you
unfortunately would not be able to rely on insurance cover.

A risk is also only insurable if it is unexpected, not intentional. If you caused damage, such as a fire,
to your own property on purpose, not only would you receive no money to cover repairs but you
could also go to jail for a criminal act.

So, that’s the difference between an insurable risk, and an uninsurable risk.