Insurable Risks in Business

Abstract

Kenneth J Arrow, Nobel laureate in Insurance, Risk and Resource Allocation (1965), pointed out that risk is pervasive and that one of the most established methods of dealing with risk is insurance. However, not every kind of risk is insurable. Traditionally, risks involving losses on damage to property, injury to people, legal liability claims arising out of damage to property or injury to people and consequential losses arising from damage to property are insurable against a wide range of perils. Generally, business risks are not insurable. A characteristic of business risks is that the loss or damage is in nature a ‘pure financial loss’. This may be defined as a loss for which it does not involve damage to physical property but only results in financial losses. Insolvency is an example.