What is the definition of risk in insurance terms?

In insurance terms, risk is defined as the uncertainty of financial loss. This concept encompasses the idea that there are various scenarios where a loss could occur, and until the outcome is realized, there is a level of uncertainty involved. Insurance operates on the principle of managing and mitigating these risks by pooling resources from many policyholders to cover the losses experienced by a few. This uncertainty is what drives the need for insurance, as it helps individuals and organizations protect against potential financial impacts resulting from loss events such as accidents, natural disasters, or other unforeseen circumstances.

Understanding risk as uncertainty of financial loss is crucial in the context of insurance, as it lays the foundation for assessing premiums, coverage needs, and the overall purpose of insurance products in providing financial security.