What is the main characteristic of pure risk?

The main characteristic of pure risk is that it involves only the chance of loss and is considered insurable. This means that pure risks are situations where there is no possibility of financial gain, only the potential for loss or damage. Insurance companies are willing to cover these types of risks because they can use statistical data to calculate the likelihood and potential extent of the losses, enabling them to create policies and premiums that address these risks effectively.

Pure risks are typically associated with events such as natural disasters, accidents, or illness, where the outcomes are uncertain, but the consequences are predominantly adverse. This makes them distinct from other risk types, particularly speculative risks, which involve both the possibility of gain and the possibility of loss. Speculative risks often refer to investments or entrepreneurial activities where outcomes can vary widely.

Understanding this distinction is crucial for anyone involved in managing risks, as it influences how individuals and businesses approach insurance and risk management strategies.