Pure risk, also known as absolute risk, is insurable. Learn vocabulary, terms, and more with flashcards, games, and other study tools. Like an earthquake hitting your house, in california. While pure risk is beyond human control and can only result in a loss if it occurs, speculative risk is taken on voluntarily and can result. Risk is defined as the possibility of loss or injury, and insurance is concerned with the degree of probability of loss or injury. Strategic risk refers to uncertainty regarding the firms financial. Purpose the purpose of this editorial is to study the relationship between the pure risks of insurance and the speculative risks of other financial markets in the context of financial services. Risks can also be categorized as pure or speculative. However, the pure risk consequences of speculative risk is insurable. This lesson will provide an overview of speculative risk. Pure risk vs speculative risk insurance software development. Pure and speculative risk a pure risk is a situation in which there are only the possibilities of loss or no loss earthquake a speculative risk is a situation in which either profit or loss is possible gambling diversifiable risk and nondiversifiable risk a diversifiable risk affects only individuals or small groups car.
Understanding and quantifying risk davis claims service. This overview will provide the definition and several examples of speculative risk from an investors point of view. Degree of risk or objective risk calculation and concept ch 2. Pure risk, physi cal loss on private care b money invested in mark six tickets. Speculative risk can be contracted with pure risk, a category of risk in which the only possible outcome is loss. Pure risk, speculative risk diversifiable risk, enterprise risk. Invite students to present their answers to the class. Pure risks are those risks where only a loss can occur if the event. Speculative risk legal definition merriamwebster law.
Speculative risk is risk that is taken on purpose in order to try to achieve gains. Where as speculative risks are those where there is a possibility of gain as well as loss. A speculative risk is one in which both profit or loss are possible gambling, purchasing shares why distinguishing between pure and speculative. The result is always unfavorable, or maybe the same situation as existed before the event has remained without giving birth to a profit or loss. For example, the risks of an accident, a car theft or earthquake are pure risks. Occurence of this risk may result in loss only and no gains. Insurance provides protection from the exposure to hazards and the probability of loss. Pure risk is the risk which involves only the possibility of loss or no loss. While some definitions of risk focus only on the probability. The following are illustrative examples of speculative risk. Classifications of risk pure chance of loss or no loss.
Pure risks are generally insurable, whereas speculative risks which also present the opportunity for gain generally are not. What is the difference between pure risk and speculative risk. Selfinsurance, captive insurer, risk management steps. Principles of risk management and insurance class notes risk. Pure risks are those risks where only a loss can occur if the event happens. Both speculative risk and pure risk involve the possibility of loss.
In order to understand why, you will need to understand the difference between the two. Unlike pure risks, speculative risks are usually not insurable. Risk management usually refers to the process of identifying, measuring, controlling, and minimizing uncertainties which may directly or indirectly affect a desired outcome of a system. In contrast to speculative risk, pure risk involves situations where the only outcome is loss. Aug 06, 2008 pure risk, also known as absolute risk, is insurable. All speculative risks are made as conscious choices and are not just a result of. Speculative risk, is something that potentially has an upside like when you buy stock, in the stock market. Operational risks, for example, can be regarded as operations that can cause only loss or operations that can provide also.
Speculative risk is action or inaction that has potential for both gain and loss. What is the difference between pure and speculative risk. Speculative risks are undertaken through a conscious choice, and they are considered a controllable risk. A pure risk is generally insurable while speculative risk is usually not. Business, international earnings per share forecasts and trends stock markets stock prices stocks prices and rates work related injuries workrelated injuries. Risk management pure risk and speculative risk explained. Hello, im posting an image below to make it easy for you to understand the difference between the two concepts, hope this helps. How does it differ with the holistic risk management appro. Since there is some chance of either a gain or a loss, speculative risk is the opposite of pure risk, which is the possibility of only a loss and no potential for gain. Speculative risk involves both the possibility of gain as wellas possiblity of loss. Distinguish between pure risk and speculative risk. There are products that can be purchased to mitigate pure risk, such as home.
There is no gain to the individual or the organization. Were now going to unravel the complexity of speculative risks and pure risks. May 12, 2017 before providing examples of potential speculative risks, its very important to first understand or define what you mean by speculation and by the term investment. Investing in the stock market is an example of a speculative risk. Law of large numbers, expected loss, and social insurance ch 3. Lets try and gain some insights into what distinguishes a business risk from project risk. Pure risk vs speculative risk insurance textbooks have distinguished for many years between pure risk and speculative risk situations. Risk is incorporated into so many different disciplines from insurance to engineering to portfolio theory that it should come as no surprise that it is defined in different ways by each one. List and explain in detail the three kinds of pure risk. Dec 04, 2012 managing risk, speculative risk and pure risk discussed by prof tim.
Speculative risk is that a loss, no loss or gain all 3 are possible. A business organization has to manage both business risks and project risks. However, speculative risk also involves the possibility of gain as well even if there is no loss. Gambling and investing in the stock market are two examples of speculative risks. Pure risk is generally prevalent in situations such as natural disasters, fires, or death. Richardson, seneca college and university of toronto camera wizard again by edward. Pure risk mean it is certain that gain cannot be made out of the situation only loss or no loss will occur.
Distinguish between pure risk and speculative explain the difference specula vs flashcards what is risk. Pure risk is a category of in which loss the only possible outcome. Jul 25, 2017 speculative risk is the opposite of pure 11 feb 2014 it covers speculative risks, speculative risk, pure and risk, speculative insurance, pure definition, speculative definition 6 aug 2008 risk, also. What is the differences between pure risk and speculative. Find an answer to your question which type of risk is most likely to be insurable. But there is a significant difference between the two. Almost all financial investment activities are examples of speculative risk, because such ventures ultimately result in an unknown amount of success or failure. In pure risk, there is either a possible loss or no loss. There are no opportunities for gain or profit when pure risk is involved. Pure risk is a situation that holds out only the possibility of loss or no loss or no loss.
So far we have been dealing with speculative risks all investment risks are speculative risks, in that one can either gain or lose as a result in this unit we will deal with pure risks. Nov 25, 2019 speculative risk is a category of risk that, when undertaken, results in an uncertain degree of gain or loss. Managing risk, speculative risk and pure risk discussed by prof tim. Pure and speculative risk o pure risk a situation in which. All speculative risks are undertaken as a result of a conscious choice. Pure risks are types of risk where no profit or gain is possible and only full loss, partial loss or breakeven situation are probable outcomes. Attitudes toward speculative risks as an indicator of. Distinguish between pure risk and speculative risk on the.
Managing risk, speculative risk and pure risk discussed. Sep 29, 2010 pure risk, is two sided its something that only ever has a downside no upside, and, its completely out of your control. Quiz questions correspond to the lesson and they will help you. Business risks when you talk about risk in the context of business, it could be anything that has the. Aug 01, 2006 the purpose of this editorial is to study the relationship between the pure risks of insurance and the speculative risks of other financial markets in the context of financial services convergence. Insurance industry term for a situation where the possibility of either a financial loss or a financial gain exists, such as in purchase of shares or betting on horses. This can be contrasted with pure risk that only has potential for loss. Each offers a chance to make money, lose money or walk away even.
Risk management pure risk and speculative risk explained risk management is a relatively new and evolving field. While pure risk is beyond human control and can only result in a loss if it occurs, speculative risk is taken on voluntarily and can result in either a profit or loss. Pure risk situations are those where there is a possibility of loss or no loss. Where as speculative risks are those where there is a. May 12, 2019 pure risk is a category of risk in which loss is the only possible outcome, which is the opposite of speculative risk. Richardson, seneca college and university of toronto camera wizard again by edward done in bus106 section mw dec 4th 2012. Pure risk can be insured while speculative risk cant. Test what you know about speculative risk with these interactive study assessments.
Pure risk is the type of risk that is commonly insured such as the risk of disease, disaster, fire and accidents. In other words a pure risk is a situation that can only end in a loss. Unlike pure risk, speculative risk has opportunities for loss or gain and requires the consideration of all potential risks before choosing an action. The element of gain is inherent or structured in such a situation. For example, if you buy a new textbook, you face the prospect of the book being stolen or not being stolen. For pure and speculative risks, pure risks are insurable because there is no element of you profiting or gaining from losses coming from pure risks while for speculative risks, you already know. Pure risks are a family of risks in which all possible outcomes are harmful in some way. Speculative risk uncertainty about an event under consideration that could produce either a profit or a loss, such as a business venture or a gambling transaction. In engineering, risk is commonly divided into speculative risk of potential economic losses or gains and nonspeculative or pure risk related to damaging phenomena, such as failures and accidents of physical objects as well as disturbances in computer networks and damage to information systems 4. Pure risk is a type of risk that cannot be controlled and has two outcomes. In contrast, there are possibilities of gain or loss in speculative risk.