What type of risk will insurance companies typically insure?

Insurance companies typically insure pure risks, which involve situations that can only result in a loss or no loss, without the potential for financial gain. This type of risk includes events such as accidents, natural disasters, or health issues, where the outcomes are inherently uncertain but do not present a chance for profit.

Pure risks are insurable because they allow insurers to assess the likelihood of occurrence and potential losses based on empirical data. These assessments enable insurance companies to develop policies that can cover potential losses while also maintaining their solvency and profitability.

In contrast, speculative risks involve situations that can result in a gain or loss, such as investments in stock markets or business ventures. Insurance companies typically avoid insuring these risks due to their unpredictability and inherent potential for profit, which does not align with the fundamental principles of insurance.

Complex risks and adventurous risks are also categories that generally fall outside the scope of traditional insurance coverage, as they either incorporate speculative elements or involve intricate variables that make risk assessment challenging. Thus, the focus on pure risks is a fundamental aspect of how insurance operates, ensuring that companies can provide financial security against losses without engaging in uncertain or speculative endeavors.