For the purpose of insurance, what is risk?

Risk, in the context of insurance, primarily refers to the likelihood or probability of a loss or damage occurring. It encompasses uncertainties that can have financial repercussions, impacting individuals, businesses, or property. Insurers assess this risk to determine coverage eligibility, premiums, and terms of the policy.

Understanding risk is fundamental for both insurers and policyholders. Insurers need to evaluate and price the risk correctly to ensure the company remains solvent while still offering competitive premiums. For policyholders, awareness of risk helps in making informed decisions related to their coverage needs.

While other options relate to aspects of insurance—financial obligations, policy terms, and underwriting processes—they do not define risk itself. Therefore, affirming that risk is the likelihood of loss or damage is key to grasping the foundational concepts of insurance.