What does the term "risk" refer to in insurance?

The term "risk" in insurance primarily refers to the chance of loss occurring. This concept is central to the insurance industry, as it helps insurers assess the potential for claims against policies. When evaluating risk, insurers analyze various factors that could lead to a loss, such as legal liability, property damage, or health issues, and they utilize this information to determine premiums and coverage options. In essence, risk is about uncertainty and the probability of events that would lead to financial loss, guiding the overall function of insurance and the protection it provides to policyholders. The focus on potential losses allows insurers to create strategies to mitigate these risks and manage their portfolios effectively.