What type of risk does an insurance company typically accept?

Insurance companies primarily accept pure risk, which refers to risks that can result only in loss or no loss, with no potential for financial gain. This type of risk involves situations that can lead to events such as accidents, natural disasters, illness, or death. By insuring against pure risks, companies can provide financial protection to policyholders in the event of such unforeseen occurrences, and they can base their pricing and underwriting strategies on the statistical likelihood of these risks.

In contrast, speculative risk involves situations where there is a possibility of both loss and gain, such as investments in stocks or entrepreneurial ventures. While important in the broader financial landscape, these risks fall outside the typical scope of insurance products. Financial and market risks pertain to uncertainties in financial markets and economic conditions, which are not the direct concern of insurance entities. Therefore, insurance companies focus on pure risks because they are inherently insurable and allow for the calculation of premiums based on probability and potential loss.