Insurance Broker Certification Practice Exam

What type of risk is an insurer usually unwilling to accept?

1. Pure risk

2. Controlled risk

3. Speculative risk

4. Managed risk

The correct answer is: Speculative risk

Insurers typically avoid accepting speculative risk because it involves potential for both gain and loss, which can make it unpredictable and difficult to assess. Speculative risks are often associated with business ventures like investments and gambling where the outcome is uncertain, and the insurer cannot adequately calculate premiums relative to the potential losses. In contrast, pure risk—where there are only potential losses without any chance for gain—is something that insurers are designed to handle, as it fits within the framework of traditional insurance underwriting. Controlled risk refers to scenarios where steps can be taken to minimize exposure, making them more palatable to insurers. Managed risk involves strategies to reduce the likelihood or severity of losses, which again aligns with how insurance companies operate. By avoiding speculative risks, insurers maintain financial stability and can focus on providing coverage for predictable and quantifiable risks that fit within their business model.