What kind of risks do insurance companies typically cover?

Insurance companies typically cover pure risks. A pure risk is one that involves a situation where there is a possibility of loss or no loss, but no chance of gain. This includes risks associated with events like natural disasters, theft, accidents, and illnesses. Because of the predictability and statistical data available for pure risks, insurance companies can assess these risks more accurately and determine appropriate premiums.

In contrast, speculative risks, which involve a chance of loss or gain (such as investment risks or business ventures), are not generally covered by insurance. Moreover, catastrophic risks, while they can be considered under the umbrella of pure risks, represent a specific type of risk that may require special policies or regulations due to their potential impact. Therefore, focusing on pure risks provides a clear understanding of the insurance industry’s operational parameters.