What characterizes a 'pure risk'?

A 'pure risk' is characterized primarily by the possibility of loss or no change, without any opportunity for financial gain. This type of risk is distinct from speculative risks, where there is potential for both profit and loss. Pure risks are typically associated with situations that can either result in a loss (such as property damage, bodily injury, or liability claims) or where no loss occurs, such as driving a car without an accident.

The definition emphasizes that pure risks do not allow for positive outcomes; they solely deal with scenarios that can lead to negative impacts or no impact at all. This characteristic makes pure risk insurable, as insurance is designed to protect against potential losses. In contrast, speculative risks involve ventures like investments, where the outcomes can result in gains, losses, or remain unchanged, making them inherently different from pure risks.

Understanding pure risk helps highlight the nature of certain insurance products and the type of coverage required for various situations, where the focus is solely on mitigating potential losses.