Richardson, Seneca College and University of Toronto - camera wizard again by Edward - done in BUS106 Section MW Dec 4th 2012. Risk is the uncertainty that a loss may occur. Thus playing roulette or buying Microsoft shares is considered a speculative risk, whereas being robbed or dying is considered a pure risk. Ask Me Anything: About Origin And Nature Of Banking, Security- Concept & Types Characteristics of good Security Proper Valuation of Security, Shortfall In Documentation And Others Lapses, Banking News Headlines all over the globe. Any vehicles financed by my company are mitigated by insurance that pay if a vehicle is damaged or do not pay if a vehicle is not damaged. Although risks of an individual are always uncertain and not measurable, it can be measured with the help of knowledge of the past occurrences by way of applying law of large number. Learning Objectives. One can not deny the fact that insurance system has certain inherent weaknesses. Speculative risk is the risk that something will happen causing a loss, or something could happen leading to a gain. Reinsurance can be effected broadly by two methods: (a) Facultative; and (b) Treaty. Thank you for viewing Stuck on Homeowners? Therefore, the element of uncertainty in General Insurance is associated with only the happening or not happening of the event of the insured risks. Each offers a chance to make money, lose money or walk away even. Pure risks are those risks where only a loss can occur if the event happens. While speculative risk deals with gain or loss (profit or loss). How would you suggest your organization go about determining if an identified risk is pure or speculative. Gambling and investing in the stock market are two examples of speculative risks. Thanks for this post. Appalachian Airlines began operating in 2010. The easiest way to tell the difference between the two types of risk is the types of outcome that are possible, and whether the risk is voluntary. Unlike most speculative risks, pure risks are typically insurable through commercial, personal, or liability insurance policies. Facultative reinsurance is effected only in …, What is Reinsurance It is understood that in insurance the fund of the policyholders is managed by insurance companies and the losses incurred by a few are shouldered by many. Possibility of profits/ loss : 1.Occurence of this risk may result in loss only and no gains. It is only the pure risk which is dealt with by insurance. However, in General Insurance the premium or the price of insurance is certain and the measures of indemnity are also known both to the insured and the insurer. These are the risks that directly affect the individual’s capability to earn income. The normal business risk is a speculative risk. The …, How insurance protects value of life The main economic problem which arises when someone in the family dies, is the loss of earnings of the deceased person. Speculative Risk: Three possible outcomes exist in speculative risk; something good (gain), something bad (loss) or nothing (staying even). Can a situation cause one to become the other? The possibility of gain is a moral hazard (more on that later) that makes people seek out the risk, rather than avoid it. You will also learn several different ways to split risk exposures according to the risk types involved (pure versus speculative, systemic versus idiosyncratic, diversifiable versus nondiversifiable). Start studying Pure Risk vs Speculative Risk. Pure VsSpeculative Risk Pure Risk : Uncertainty whether loss will occur No possibility of gain. 2nd post pure risk is a situation that can only end in a loss. We cannot think about a gain-gain situation.The result is always unfavorable, or maybe the same situation (as existed before the event) has remained without giving birth to a profit (or loss).As opposed to this, speculative risks are those risks where there is the possibility of gain or profit. Pure vs. speculative risk While pure risk is beyond human control and can only result in a loss if it occurs, speculative risk is taken on voluntarily and can result in either a profit or loss. The following are illustrative examples of speculative risk. Speculative risk is defined as a loss/gain situation, whereas pure risk occurs when the possible outcomes are either loss or no-loss. Insurance for all purposes is a device to cover losses arising out of uncertain events. Pure risk is the type of risk that is commonly insured such as the risk of disease, disaster, fire and accidents. It seems to be that pure risk is less difficult to mitigate because it only deals with if there is a loss or not. However, speculative risk also involves the possibility of gain as well - even if there is no loss. A speculative risk is one in which both profit or loss are possible (gambling, purchasing shares) Why distinguishing between pure and speculative: 1- Private insurers insure only pure risks. Most speculative risks are uninsurable, because they are undertaken willingly for the hope of profit. It seems to be that pure risk is less difficult to mitigate because it only deals with if there is a loss or not. Pure Risk In contrast to speculative risk, pure risk involves situations where the only outcome is loss. Each offers a chance to make money, lose money or walk away even. The term pure rik must be distinguished with speculative risk. This is done by combining under one management, a …, What is the main function of Insurance We all know that life is full of uncertainty. But in a speculative risk the fear of Joss and the hope of gain are both associated with it. Since 2010, we have offered professional writing services to clients all over the world. Almost all financial investment activities are examples of speculative risk, because such ventures ultimately result in an unknown amount of success or failure. Explanation: Speculative risk is usually associated with investment, which nearly always carries the possibility of making a profit or loss. This requires different levels of mitigation which includes but is not limited to diversification and hedging much more difficult than purchasing premiums that pay if a vehicle is damaged and do not if there is no damage. So far we have been dealing with speculative risks –all investment risks are speculative risks, in that one can either gain or lose as a result In this unit we will deal with pure risks. Speculative Risk vs. Pure risk or absolute risk is a type of risk that cannot be controlled and has only two possible outcomes: complete loss or no loss, therefore there are no opportunities for gain or profit. ‘Speculative’ risks may result in either … Speculative risks are undertaken through a conscious choice, and they are considered a controllable risk. There are various reasons cited by those who do not accept life insurance …, The weaknesses of conventional non-Life Insurance What are the weaknesses of conventional non-Life Insurance? 2- The law of large numbers apply easily to pure risks than speculative risk. Speculative risks are not insurable. For example, the risks of Pure risk (also known as accidental risk or hazard risk) is defined as the risk related to loss exposures generated by accidental events that can generate only two results when they occur: • Losses, or • No losses. Risk categories. How might that affect profits? Speculative risks on the other hand are a family of risks in which some possible outcomes are beneficial. …, The Actuarial Principle of Life Insurance The actuarial side of life insurance is the function of mathematicians. Pure Risk mean it is certain that gain cannot be made out of the situation – only loss or no loss will occur. Pure risk, also known as absolute risk, is insurable. Speculative risk would be like gambling or investing in the stock market. This is because …, Agent Banking in South-east Asia (Bangladesh), What are the objections against conventional life insurance, The weaknesses of conventional non-Life Insurance, The Actuarial Principle of Life Insurance, What are the social and economic values of Insurance, How Life Insurance schemes meet the saving needs. 2. Mathematically, when defining risk in terms of probability over 0 to 1; Pure risks have that probability of losses very close or nearly equal to 1 with very very narrow chances of escaping that loss whereas in speculative risk, we can very much limit our losses and kind of hinge it towards a particular value this making it speculative in nature. Speculative risk is risk that is taken on purpose in order to try to achieve gains. Pure risks are those which have the prospect of loss or no loss. Pure risks are those risks where the outcome shall result in loss only or at best a break-even situation. While speculative risk deals with gain or loss (profit or loss). There are two types of risks: speculative risk vs. pure risk. Speculative risk is controllable risk as it involves moral hazard that makes people seek. How do we distinguish between Pure Risk and Speculative Risk? Speculative Risk: Three possible outcomes exist in speculative risk: something good (gain), something bad (loss) or nothing (staying even). How do we distinguish between Pure Risk and Speculative Risk? https://academicheroes.com/wp-content/uploads/2020/11/logo1-1.png. Speculative risks are not insurable because the lure of the possible reward causes people to take these risks upon themselves willingly. Speculative risk can be contracted with pure risk, a category of risk in which the only possible outcome is loss. Any vehicles financed by my company are mitigated by insurance that pay if a vehicle is damaged or do not pay if a vehicle is not damaged. Risk: Risk is the exposure of an individual or a company to a situation that may lead to a loss. Both speculative risk and pure risk involve the possibility of loss. I like what you have here. Example : Fire to property, Accident Speculative Risk : Uncertainty of even that will that could provide either profit or loss Example : Business venture ,Investment decisions Thanks. But in a speculative risk the fear of Joss and the hope of gain are both associated with it. Speculative risk: Speculative risk involves both the possibility of gain as wellas possiblity of loss. 2 The classic theory of risk divides it into the following two categories: • Pure risk, and • Speculative risk. In investment, it may lead to an investor getting returns that are lower than the expected value. Class we need your coverage here! Premature Death: Death of the bread earner with unfulfilled or unprovided financial obligations. Pure risks are those which have the prospect of loss or no loss. 2. We can not avoid the risks in life and hence insurance. However what about insufficient insurance coverage. only need 100 words no plagairism. However, the risk of fire is a pure risk. In order to understand why, you will need to understand the difference between the two. 3. The term pure rik must be distinguished with speculative risk. Personal risks can be classified into the following types: 1. It is much easier to mitigate yes or no than levels of mitigation such as in speculating in the stock market with money gained from customer deposits. first post need this back tomorrow. Gambling and investing in the stock market are two examples of speculative risks. Speculative risk differs from pure risk because there is the possibility of profit or loss, such as investing in financial markets. Pure risk, also known as absolute risk, is insurable. All speculative risks are undertaken as a result of a conscious choice. Pure risk, also known as absolute risk, is insurable. 10 Mar 4pm EST. Investing in the stock market is an example of a speculative risk. For any questions, feedback, or comments, we have an ethical customer support team that is always waiting on the line for your inquiries. For example, the risks of an accident, a car theft or earthquake are pure risks. A risk, in a business context, is anything that threatens an organization's ability to generate profits at its target levels. Managing Risk, speculative Risk and Pure Risk discussed by Prof Tim. However, products do exist to hedge against certain types of speculative risk such as exchange rate risk.Pure risk is the most likely type of risk to impact individuals who mostly avoid speculative risk if they don't invest or own a small business.Some definitions of … The purchase of life insurance leads itself to a regular, consistent savings plan. Over the years, our writers have gained solid experience in all academic disciplines, giving them a competitive edge to provide only first-rate academic papers. effects of pure and speculative risks to which an organisation is exposed’. Individuals transfer part of a … 5. Like death in accident is a pure risk. Continue Reading. Learn vocabulary, terms, and more with flashcards, games, and other study tools. In other words a speculative risk is a situation that might also end in a gain. 3- Society may benefit from speculative risk but harmed from pure risk. The normal business risk is a speculative risk. Speculative Risk: Three possible outcomes exist in speculative risk: something good (gain), something bad (loss) or nothing (staying even). The video linked below will give you a better understanding of a homeowners policy. In a business …, What is the greatest value of Insurance Insurance is a socio-economic institution that reduces risk both to society and to individuals. (adsbygoogle = window.adsbygoogle || []).push({}); What are the objections against conventional life insurance   What are the objections against conventional life insurance? Gambling and investing in the stock market are two examples of speculative risks. Business risks are broadly categorized as pure risks, which are negative events over which the organization has no control, and speculative risks, which are potential effects of actions taken and choices made that may have positive and/or negative effects. Pure risk would be like a house fire, or premature death. It's why we wouldn't sell a car insurance policy to someone who was into drag racing. Note that ‘pure’ risks can result only in preservation of the status quo or loss to the organisation – for example injury, disease, damage or death. For example, the …, Different methods of re-insurance What are the different methods of re-insurance? read the following two post and respond to the 2nd post Speculative risk carry some inherent advantages ti the economy or the society at large while pure risks like uninsured catastrophes may be highly damaging. Old Age: It refers to the risk of not having sufficient income at the age of retirement or the age becoming so that mere is a possibility that the individual may not be able to earn the livelihood. An actuary or mathematician with the help of mortality table can calculate the …, What are the social and economic values of Insurance What are the social and economic values of Insurance: Dr. Mark R. Greene in his book “Risk and Insurance” has listed …, How Life Insurance schemes meet the saving needs How Life Insurance schemes meet the saving needs? Speculative risk is that a loss, no loss or gain – all 3 are possible. 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