pure risk (absolute risk) definition

Contributor(s): Ben Cole

Pure risk, also called absolute risk, is a category of threat that is beyond human control and has only one possible outcome: loss. Pure risk includes such things as natural disasters, fire or untimely death. 

There are four basic ways of dealing with risk: reduce it, avoid it, accept it or transfer it.  Pure risk is often transferred by purchasing insurance, which transfers the risk to an insurance company.  

When a company provides insurance for a pure risk, they are engaging in speculative risk, hoping that the customer will not experience a loss until the after the company has profited from the risk transfer.

This was first published in April 2014

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