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When we use the word“risk”,we mean it will possibly cause losses or damages to someone when it happens.The outcome may be serious.In this way,we can say fire is a risk,theft is a risk,and personal injury is a risk and so on.What is the meaning of risk?
Risk can be defined as the possibility or uncertainty of damage and loss,but not the damage and loss that have occurred on a certain property. 1
Risk is the possibility of an unfortunate occurrence.
Risk is a combination of hazards.Risk is unpredictable,which refers that the actual results may differ from predicted results. 2
After studying the definitions,we know that there does seem to emerge some kind of common thread running through each of them.First of all,it has an underlying idea of uncertainty that we refer to as doubt about the future. 3 Secondly,it implicates that there are different levels or degrees of risk.Thirdly,it underlies the idea of a result which has been brought by a cause or causes.
Suppose a child is playing basketball in the middle of a busy street;what will happen to him?If a worker is using a machine while he does not know that it is faulty and dangerous,what will happen to him?And if a pedestrian does not know the wall running alongside a pavement is dangerous and is about to collapse because of continuous rain,what will happen to him?There is an element of risk and uncertainty in the three examples.The
child may escape free of injury,but he can be hit by a car.The machine may suddenly collapse and hit the worker.If he is lucky,the machine may hold out and does not explode until he has finished using it.And if the wall suddenly collapses,it can hit the pedestrian.If he is quick enough,he may escape from the falling wall.
In a word,it all depends on luckiness and fortune in above cases.We can conclude that uncertainty is not dependent on whether you recognize it or not.It always exists around us. 4
Peril means the possibility that something is likely to cause injury,pain,harm,or loss and damage. 5 It is a risk accident.Hazard means something that increases the possibility of a loss.It is a factor that influences the outcome.
When a house is located on the riverbank,it will face the risk of flood.The risk of flood does not really make sense;what we mean is the risk of flood damage.Flood is the cause of the loss and the fact that one of the houses was right on the bank of the river influences the outcome.
Hazards are not themselves the cause of the loss,but they can increase or decrease the effect if a peril operates.The consideration of hazard is important when an insurance company is deciding whether or not it should insure some risk and what premium to charge.
We can conclude that flood is the peril and the proximity of the house to the river is the hazard.The peril is the prime cause.Often it is beyond the control of anyone who may be involved.In this way,we can say that the storm,fire,theft,motor accident and explosion are all perils.
Hazard can be physical or moral.Physical hazard relates to the physical cha-racteristics of the risk,such as the nature of construction of a building,security protection at a shop or factory,or the proximity of houses to a riverbank.Moral hazard is a situation in which a party is more likely to take risks because the costs that could result will not be borne by the party taking the risk.In other words,it is a tendency to be more willing to take a risk,
knowing that the potential costs or burdens of taking such risk will be borne by others.Therefore moral hazard concerns the human aspects which may influence the outcome.This usually refers to the attitude of the insured person.
A financial risk is one where the result or the outcome can be measured by money.For example,material damage to property,theft of property,house being damaged because of a fire,etc.All of them belong to financial risks.In case of the risk of personal injury,it can also be possible to measure the financial loss in the court by the judge awarding damages to the insured or make the settlement of the financial loss by negotiating between lawyers and insurers.
Non-financial risk would refer to anything that is not monetary or that which cannot be associated or viewed in terms of money. 6 For example,if you choose a new car from a car dealer,or select an item from a restaurant menu,we cannot say that they belong to financial risks.Other examples are the selection of your career,the choice of your marriage partner or spouse.All of these are non-financial risks because they cannot be measured by money.
Pure risk refers loss or a break-even situation.There is no chance of gaining profits. 7 The outcome is unfavorable to us or leaves us in the same position as we enjoy before the event occurs.For example,machinery may break down and take some time to be repaired.More examples are the risk of a motor accident,fire at a company,theft of goods from the factory,or injury at work.They are all pure risks.
Speculative risk refers to a loss,a break-even or the chance of gaining
pro-fits. 8 For example,when you invest money in stock and security market,you may result in a loss,or a beak-even,if you are lucky,you may have the chance of gain-ing profits in the investment.Another example is that the manufacturer who provides credit to customers can be a risky venture,the goods have been sold by him in the hope of gaining profits,but the client or the customer may not be able to pay for them and the result is a loss.
Fundamental risks are those which arise from causes outside the control of any individual or even a group of individuals. 9 In addition,the effect of fundamental risk affects large number of people.This kind of classification includes earthquakes,floods,famine,volcanoes and other natural disasters.Besides,social changes,political interventions and war can be explained as fundamental risks.
Particular risks refer to personal risks.They are much more personal both in the cause and effect.This includes many of the risks we have already mentioned above such as fire,theft,injury and motor accidents.All of these risks arise from individual causes and affect individuals in their outcomes.
In the early part of 17 th century,unemployment was regarded as a particular risk in USA;it was believed or implicated that being unemployed was the fault of individual himself.However,technological unemployment of eighties and nineties has changed that viewpoint because of the changes in industrial and commercial world.People no longer emphasized the fault of individual himself,but focused on the society as the reason for unemployment.
Figure 1.2