CHAPTERI–INTRODUCTION

THE CONCEPT OF RISK

Due to imperfect knowledge about the future, our actions are likely to result in outcomes which
are different from our expectations. This is something that is not desirable .Risk exists because
there is no perfect foresight about the future.
Because risk is undesirable and its consequences are, at times, damaging to individual, businesses
and the society as a whole, mankind is constantly developing its predictive ability through the
constant upgrading and refinement of its knowledge. The more mankind is knowledgeable
about the future, the more certain it will be concerning future events. But, the disappointing
phenomenon is that perfect foresight about the future is something impossible. Thus, risk
becomes a fact of life that will remain side by side with the activities of mankind.
Every discipline has its own specialized terminology which has very simple meanings in every
day usage often take on different and complicated connotations when applied in a specialized
field.
This section mainly emphasized on the concept of risk.

Risk exists whenever the future is unknown.

Because the adverse effects of risk have plagued mankind since the beginning of time,
individuals, groups and societies have developed various methods for managing risk. Since no
one knows the future exactly, everyone is a risk manager for himself. i.e... Not by choice, but
by sheer necessity.

Risk by itself has an adverse effect

Risk defined:
When someone states that there is risk in a given situation, the listener understands what is
meant that in the given situation there is uncertainty about the outcome, and that the possibility
exists that the outcome will be unfavorable. This loose intuitive notion of risk, which implies a
lack of knowledge about the future and the possibility of some adverse consequence, is
satisfactory for conversational usage.
No comprehensive definition exists so far. It is defined in different forms by several authors with
some differences in the wordings used. The essence however is very similar. In general, risk
refers to exposure to adverse consequences.
Before we define risk for our purpose, it would be advisable to consider the various definitions
given by different scholars and practitioners to comprehend the basic concept of risk.
Economists, decision theorists and insurance theorists have long discussed the concept of “risk”
and “uncertainty” in an attempt to arrive at a definition of risk.
Up to the present time, they have not been able to agree on a definition that can be used in
each field with the same facility, nor does it appears likely that they will not do so in the near
future.

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Risk management is still in its infancy as a body of theory. As a result, we find many
contradictory definitions of risk throughout the literature dealing with this phenomenon from
the risk management or an insurance point of view. One reason for these contradictions is that
risk management or insurance theorists have attempted to borrow the definition if risk used in
other fields.
The term risk used in different ways; the following definitions given by different scholars and
practitioners in the field:
 Risk is the chance of loss
 Risk is the possibility of loss
 Risk is uncertainly
 Risk is the dispersion of actual from expected result
 Risk is the probability of any outcome different from the one expected
 Doubt
 Worry
 The exposure of adverse consequence
 Undesirable events
Generally, it has bad/negative connotation
Let’s see if each definition means approximately the same thing, or has a different connotation,
to decide the one which is preferable, and which, if any, is suitable for out purpose.
Risk is the chance of loss
Many writers define risk as the “chance of loss” what exactly is meant by this term? Webster
defines “chance of loss” in two ways:
 As “a possibility or like hood of something happening” and
 As “…… a degree of probability”

One defect in the definition of risk as the “chance of loss” is that we cannot always be certain
which of these two meanings is intended.
On the other hand, “chance of loss” is often used to indicate a degree of
probability in a given situation, and many writers reject the definition of risk as
the “chance of loss” because of the possible connotation of probability.
When used to indicate a degree of probability the “chance of loss” is most frequently expressed
as a percentage or a fraction. In this context the chance of loss is simply the probability of loss.
It indicates the probable number and severity of loss out of a given number of exposures.
Example: if you are offered a prize for drawing a white ball out of a box that contains nine
black balls and one white ball, your chance of loss is 9/10 or 90%.

Those writers argue that if “risk” and “chance of loss” (i.e. probability of loss) mean the same
thing, the degree of risk and the degree of probability should always be the same. Yet when the
chance of loss (defined as the probability of loss) is 100%, the loss is certain and there is no risk.
Risk always has the implication that the outcome is some how in question. When the chance of
loss (probability) is either 100% or 0, the degree of risk is zero.
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 Risk is the possibility of loss

Another way of defining risk is to say that it is simply the possibility of loss. Note that when we
define risk the possibility of loss, no attention is given to the probability as long as it is not zero
or one. The term “possibility” means that the probability of event is between zero and one, and
the very notion of risk implies that the outcome is in question. This definition probably comes
the closest to the notion of risk used in everyday conversation. However, it is a rather loose
definition, and does not tend itself to quantitative analysis.

Risk is Uncertainty

Some writers have carried the relationship (risk and uncertainty) to its ultimate degree and
maintain the risk uncertainty. Unfortunately, like the term “chance of loss” the term uncertainty
is ambiguous, it has several possible meanings.
The first scholarly treatment of the area of risk in relation to insurance was The Economic
Theory of Risk and Insurance by Alan H.Willett originally published in 1901.Willett recognized
that risk is commonly used in an ambiguous manner and sought to construct a more precise
definition. He arrived at the conclusion that the uncertainties of the world are an illusion based
on people’s imperfect knowledge.

A contribution of major significance in the area of risk theory as it relates to insurance was
provided by Irving Pfeffer in his Insurance and Economic Theory, for Pfeffer draws a distinction
between risk and uncertainty. According to Pfeffer, “uncertainty is a state of mind relative to a
specific fact situation.”
On the other hand, According to Irving Pfeffer risk is a combination of hazards and is measured
by probability. Uncertainty is measured by degree of belief. Risk is a state of the real world;
uncertainty is a state of mind.

More than any other writer, Pfeffer focused on the contradiction inherent in defining risk as
uncertainty.
(Reference: Irving Pfeffer, Insurance and Economic Theory)

Frank H. Knight
Knight makes his distinction between risk and uncertainty as follows:
The term “Risk” may use to designate measurable uncertainty and the term “uncertainty” for
the unmeasurable one.
Based on Frank Knight’s distinction between measurable and unmeasurable uncertainties, knight
points out that the out comes of some types of events are calculable, while those of other types
are not. If there are sufficient statistical data available, we should be able to calculate the
statistical probability of an occurrence. Since our predictions will not always be completely
accurate, there will be uncertainty surrounding the prediction, and knight calls this uncertainty
“Risk”

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 Decision theorists define risk as “Objectified Uncertainty”.
 Insurance writers define risk as “Subjectified Uncertainty”.
 Risk is the reality of the real world, but not belief.
 Risk refers to uncertainty as to the loss.
For instance, if we know the loss occur, we may have a plan to cover that loss. Therefore, this is
not a risk.
 Risk becomes important if there is uncertainty as to the occurrence of the loss.
 If we are certain, there is no risk
 Under risky situation, the outcome is undesirable.
 The degree of risk is inversely related to the ability to predict the future.
-The more the future is unpredictable and unmanageable, the greater will be the risk.
 If the probability of the occurrence is 1 or 0, the degree of risk is zero.
 If many outcomes are possible, the risk is not 0. The greater the variation, the greater the
risk

1.1 NATURE AND SCOPE OF RISK

The degree of risk
The degree of risk implies “More risk” and “Less risk” to indicate a measure of the possible size
of loss.
For those who define risk as uncertainty: the greater the uncertainly, the greater the risk. Risk is
greatest when there are two possible outcomes, each of which is equally likely to occur . In
other words, they maintain that uncertainty (risk) is at its highest point in the individual case
when the probability of loss is 0.5 or 50%.

The “degree of risk” is related to the degree of probability of loss the likelihood of occurrence.
We intuitively consider those events with a high probability of loss to be “riskier” than those
with law probability. High probability of loss is “riskier” than law probability of loss.

If risk is defined as the possibility of an adverse deviation from a desired outcome that is
expected or hoped for, the degree of risk is measured by the probability of such an adverse
deviation.

Risk Versus uncertainty

Many textbooks use the terms risk and uncertainty interchangeably. The distinction between the
two must be noted. Although the two are closely related, quite many authors make a distinction
between the two terms. Uncertainty refers to the doubt as to the occurrence of a certain desired
outcome. It is more of a subjective belief. Subjective in the sense that “it is based on the
knowledge and attitudes of person viewing the situation and different subjective uncertainties
are possible for different individuals under identical circumstances of the external
world.”(Vaughan)
o Uncertainty is the doubt as to the occurrence of certain desired outcome.

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o Uncertainty is the doubt that a person is aware of it or conscious as to the existence of the
risk.
o Risk is the possible of adverse deviation from a desired outcome that is expected or hoped
for.
o Uncertainty exists when the individual is aware of it. But risk exists when a person is aware
of it or not.
o Uncertainty depends upon the person’s estimated risk.
o Unlike probability and risk, we cannot measure uncertainty by a commonly accepted
yardstick.
Pfeffer noted the difference between risk and uncertainty a follows:
“Risk is a combination of hazards and is measured by probability; uncertainty is measured by
the degree of belief. Risk is a state of the world; uncertainty is a state of mind ”.

The confusion that may arise in this definition is that whether or not risk is measured by
probability rather than by variability. A clear explanation made above is that risk is largely
objective while uncertainty subjective.

Risk versus Probability

There exists also some confusion as to the difference between risk and probability. Part of the
confusion arises due to definitional problems. Where one defines risk as a chance of loss, it
would be very difficult to make significant difference between risk and probability. The other
difficulty is whether or not probability measures risk. For example, Pfeffer in his definition of
risk stated that risk is measured by probability.
Probabilities are generally assigned to events that are expected to happen in the future. There
may be a number of possible events that will take place under given set of conditions; and these
events may occur in equal or different chance of occurrence. The weights given to each possible
event may depend on prior knowledge, (toss of a coin),pass experience ,statistical or
mathematical estimation of relevant data or psychological belief,(subjective probabilities).
Risk, on the other hand, refers to the variation in the possible outcomes. This means that risk
depends on the entire probability distribution,(Williams and Heins).It indicates the concept of
variability. The concepts of risk and probability are, therefore, two different things.

Probability is the long run chance/possibility of an occurrence

Probability varies between 0 and 1. If the probability is 0, that outcome will not occur. If the
probability is 1, that outcome will occur. The closer the probability is to 1, the more likely it
will occur.

Risk is a characteristic of the entire probability distribution, where as there is a separate

probability for each outcome.

Risk is at its highest pt; when the probability of loss is 0.5

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The following example illustrates the distinction between risk and probability. Suppose the
occurrence of a particular event is to be considered. One extreme is that this event is certainly to
take place. Thus, the probability that this event will take place is 1.There is certainty as to the
occurrence of this event with perfect foresight in this regard. Accordingly, there is no risk. The
other extreme is that the event will not take place at all .Hence; the probability of occurrence is
zero. Here, too, there is certainty and therefore, there is no risk. In between these two extremes
there could be several occurrences of the events with the corresponding probabilities of
occurrence. This puts us in a situation of uncertainty because it is difficult to exactly tell which of
the many possible events will take place. Under this situation there is risk. This is graphically
depicted as follows:

Risk

0 0.5 1 Probability

Fig: Risk versus Probability graph / Probability Distribution/

The degree of risk is inversely related to the ability to predict which outcome will actually occur.
If the risk is 0, the future is perfectly predictable. If the risk in a given situation can be reduced,
the future becomes more predictable and more manageable.

Risk, Peril and Hazard

It is common for the terms “Peril” and “hazard” to be used inter changeably / synonymously
with each other and with “risk”. However, to be precise, it is important to distinguish these
terms. All of them transmit bad taste or feeling.

Peril: A peril is a contingency, which may cause a loss. Or: it refers to the specific cause of a
loss.
Example: - Fire is the cause of destroying of things.
- Fire, windstorm, hail, theft…etc. Each of these is the source/cause of the loss
that occurs, therefore, called a peril.

Peril is also called as a loss producing agent. It is the source of a specific loss.

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Hazard: A hazard, on the other hand is that the condition which creates or increases the
probability of a loss arising from a given peril. For example, one of the perils that can cause
loss to automobile is collision. A condition that makes the occurrence of collisions more likely is
an icy street. The icy street is the hazard and the collision is the peril.

It is possible for something to be both a peril and hazard. For instance, sickness is a peril causing
economic loss, but it also a hazard that increases the chance of loss from the peril of premature
death.

Hazards are normally classified into four categories:

1) Physical Hazards
- Physical hazards consist of those physical properties that increase the chance of loss from
the various perils.
- A physical hazard is a condition stemming from the physical characteristics of the exposure
(object) and that increases the probability and severity of loss from given perils.
For example:
- Type of construction,(wood, bricks)
- Location of property,(near burglar area, flood area, earthquake area)
- Occurrence of building,(dry cleaning, chemicals, super market)
- Working condition,(personal accidents)
- The existence of dry forests (hazard to fire), earth faults (hazard to
earthquakes) and icebergs (hazard to ocean shipping)
- Acids, working condition, etc.
- Such hazards may or may not be within human control.

2) Moral Hazard
- A moral hazard stems from the mental attitude of the insured person.
Example:
Dishonesty, fraudulent intention, exaggeration of claims, etc
- It refers to the increase of the probability of loss which results from evil tendencies in the
character of the insured person.
- It origins from the evil character of that insured person.
- Arises due to dishonest and fraudulent acts of the individual. A dishonest person, in the
hope of collecting from the insurance company, may internationally cause a loss, or may
exaggerate the amount of a loss. Example: Arson

3) Morale Hazard

- Results from a careless attitude on the part of insured persons toward the occurrence of
losses.

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 - The purchase of insurance may create a morale hazard, since the realization that the
insurance company will bear the loss.
- It doesn’t involve dishonestly, but less concern on the matter.
Example: The tendency of physicians to provide more expensive levels of care when
costs are covered by insurance.
- The inclination of juries to make larger awards when the loss is covered by insurance the
so-called “deep pocket” syndrome.

4) Legal hazard refers to characteristics of the legal system or regulatory environment that
increase the frequency or severity of losses. Examples include adverse jury verdicts or
large damage awards in liability lawsuits, statutes that require insurers to include
coverage for certain benefits in health insurance plans, such as coverage for alcoholism;
and restrict the ability of insurers to withdraw from the state because of poor
underwriting results.
5)

1.2 CLASSIFICATION OF RISK

iii. Risk may be classified in several ways according to their cause, their economic
effort, or some other dimension.

i. Financial Versus Non-Financial Risks

Financial risks - when the loss occurred has some financial implication. Or: when the risk is
expressed in financial terms.
Examples of financial risks include:
iv. Credit risk
v. Foreign exchange risk
vi. Commodity risk and
vii. Interest rate risk.
Non–Financial risks - those risks which do not have or expressed in financial terms.
Example: The death of a person, an animal.

ii Static Risks versus Dynamic Risks

Dynamic risks are those risks originates / resulting from changes in the overall economy such as
price level changes, changes in consumer taste, income distribution, technological changes,
political changes and the like. They are less predictable and hence beyond the control of risk
managers.

They are risks associated with changes, especially changes in human wants and improvement in
machinery and organization.

For example: - Changes in the price level, consumer tastes, income and output, and technology.

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 -Urban unrest, increasingly complex technology, and changing attitude of
legislatures and courts about a Varity of issues.
Static risks: refers to those losses, which would occur even if there are no changes in the over all
economy. They are Losses arising from causes other than changes in the economy. Unlike
dynamic risks, they are predictable and could be controlled to some extent by taking loss
prevention measures. Many of the perils fall under this category.

These are risks connected with losses caused by the irregular action of the forces of
nature or the mistakes and misdeeds of human beings.
Example: Risks related to losses because of
- Forces of nature/Flood, earthquake/, dishonesty,
mistakes, both moral and morale hazards

Static risks would be present in an unchanging economy. If we could hold consumer taste,
output and income and the level of technology constant, some individuals would still suffer
financial losses. These losses arise as a result of the perils of nature and the dishonesty of other
individuals.

Dynamic risks normally benefit society over the long run since they are the result of adjustments
to misallocation of resources.

Dynamic risks usually affect a large number of individuals and are generally considered loss
predictable, since they occur with any precise degree of regularity, i.e. they don’t have
regularity.

Unlike to Dynamic risks, static risks are not a source of gain to society. i.e. they usually result in
a loss to society.

Static risks affect directly few individuals at most exhibit more regularly over a specific period of
time and are generally predictable.

Static and dynamic risks are not independent; greater dynamic risks may increase some type of
static risks.
Example: -Uncertainty due to weather-related losses. This risk is usually considered to be
static.
-Increased industrialization (technology) may be affecting global weather
patterns and thereby increasing this source of static risk.

iii
Pure Risks versus Speculative Risks
The distinction between pure and speculative risks rest primarily on profit/loss structure of the
underlying situation in which the event occurs; there are only two distinct outcomes: Loss or no
loss.
A. Pure Risk
viii. A pure risk exists when there is a chance of loss but no chance of gain/profit.

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 Example: Owner of an automobile faces the risk of a collusion loss.
ix. If collusion occurs, he will suffer a financial loss. If there is no collusion, the
owner does not gain.
Most pure risks are insurable. They are always undesirable and hence people take steps to avoid
such risks.

Pure risks are further classified as follows:

While it would impossible to list all the risks confronting an individual or business organization,
we can briefly outline the nature of various pure risks that we can face.
Pure risks that exist for individuals and business firms can be classified under one of the
following:

A. Personal Risk
This refers to the possibility of loss to a person such as; Death, disability, loss of earning power,
etc…

These consist of the possibility of the loss of income or assets as a result of the loss of the ability
to earn income.
Both individual and business face losses.
In general, earning power is subject to four perils:
i. Premature death
x. Danger in person results death
Example: A known engineer may die because of accident. He was important
for the organization. Therefore, it is premature death. It is peril.

ii. Dependent old age

Example: If a person is retired, his income may decrease.
iii. Sickness or Disability
xi. For instance, if a person is sick, he may not generate income. This will result in
a loss in income.
iv. Unemployment
Example: When a person is unemployed, he will not generate the income.
Unemployment can be classified in different ways.
a. Aggregate unemployment
xii. Which affect the entire economy
b. Selective /unstructured/ type of unemployment
xiii. It affects a particular business organization
xiv. For instance if the business organization is unable to compete the market, it
will result unemployment.
c. Personal unemployment
xv. It affects the worker/individual
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 Example: If a person is unemployed because of
a. Disciplinary measures
b. Preferring other jobs
c. Lack of interest
B. Property risks
xvi. Refers to losses associated with ownership of the property, such as destruction
of property by fire. The property can be building, car, etc.
xvii. Property risks embrace two distinct types of loss:
i. Direct Loss
xviii. It is the simplest to understand
xix. It refers to the loss with the actual/equivalent to the property.
Example: If a house is destroyed by fire, the owner of the property losses the
value of the house. This is a direct loss.
ii. Indirect Loss or Consequential Loss
xx. Are losses that are going to be incurred because of the direct loss
xxi. Is additional loss besides to direct loss
Example: If a house is destroyed by fire, the owner of the property losses the
value of the house. This is a direct lose. In addition to losing the value
of the building itself, the owner of the property no longer has a place
to live; & during the time required to rebuild the house, the owner will
incur additional expenses. This loss of use of the destroyed asset is an
“indirect” or “consequential” loss.

These property risks in general can involve three types of losses:

(a) The loss of the property
xxii. We call it direct loss.
(b) The loss of the use of the property or its income and
(c) Additional expenses occasioned by the loss of the property
xxiii. Indirect loss.
C. Liability Risks
xxiv. Refers to the international or unintentional injury or damage made to other
persons or to their property. We will be responsible for the risk. i.e.: One would be legally
obliged to pay for the damages he inflicted upon other persons or their property.
D. Risk arising from failure of others
A. When another person agrees to perform a service for you, he/she
undertakes an obligation which you hope is met. When the person’s failure to meet this
obligation, you will incur financial loss. Therefore, risk exists.
Example: Failure of a contractor to complete a construction project as scheduled
or failure of debtors to make payments as expected.

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B. Speculative risk
A speculative risk exists when there is a chance of gain as well as a chance of loss. i.e. there is a
possibility of loss and gain.
Example: Gambling, Smuggling, keeping, dollar…… is a good example of a speculative risk.
Pure risks are always distasteful, but speculative risks possess some attractive features. In a
situation involving a speculative risk, society may benefit even though the individual is hurt.
For example: the introduction of a socially beneficial product may cause a firm manufacturing
the product it replaces to go bankrupt.
But in a pure-risk-situation society suffers (or share the risk) if any individual experiences a loss.
Normally only pure risks are insurable. Insurance is not concerned with the protection of
individuals against those losses arising out of speculative risks.
Speculative risk is voluntarily accepted because of its two dimensional nature, which includes the
possibility of gain and loss.
Not all pure risks are insurable, and further insurable and uninsurable pure risks may also be
made.
Static risks can be either pure or speculative risks.
Examples of pure static risks include:
- The uncertainties due to such random events of lightning, windstorms,
and death.
-Business undertakings in a stable economic illustrate the concept of
speculative static risk.
Dynamic risks also can be either pure or speculative.
Speculative risks are generally uninsurable. They are dealt with hedging and other commercial
techniques .Examples include, foreign exchange risk, gambling, etc.

iv Subjective Versus Objective Risk

Some authors classify risk into objective and subjective, (Green, Williams and Heins).These two
types of risk are also mentioned as measurable and non-measurable risk.
A. Subjective risk
-It is also called as psychological uncertainty.
-Refers to the mental state of an individual as to the occurrence of certain event in a specific
period of time.
: Refers to the mental state of an individual who experiences doubt or worry as to the outcome
of a given event.
: It is the psychological uncertainty that arises from an individual’s mental attitude or state of
mind.
B. Objective Risk
Objective risk / Statistical risk/ Objective risk has been defined as” the variation that exists in
nature and is the same for all persons facing the same situation ” It is the sate of nature.
However, each individual’s estimate of the objective risk varies due to a number of factors.

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Thus, the estimate of objective risk which depends on the person’s psychological belief is the
subjective risk. The problem, however, is that it is difficult to obtain the true objective risk in
most business situation.
The characteristic of objective risk is that it is measurable. In other words, it can be quantified
using statistical techniques. For example, the variance or standard deviation is used as a measure
of risk in finance. In some situations, the coefficient of variation is used as a measure of risk.
-Refers to the variation when actual loss differs from expected loss. The objective risk can be
measured by the concepts of variation.
The concepts of variation are variance and standard deviation.
-It can be quantified or it can be expressed numerically.

It differs from subjective risk primarily in the sense that is more precisely observable and
therefore measurable.
o In general, objective risk is the probable variation of actual from expected experience.
o It can be quantified or it can be expressed numerically.

v Fundamental risks Versus Particular Risk

The distinction between fundamental and particular risks is based on the differences in origin
and consequences of the losses.
These risks are classified based on the origin and causes of loss.
(a) Fundamental Risk
-Involve those losses that are impersonal in origin and consequence.
-They are group risks caused for the most part by economic, social and political phenomena.
-They affect a large number of society
-Since these are group risks, impersonal in origin and effect, they are unpreventable at least for
the individual.
-They are not the fault of anyone.
Example: Risk associated with uncertainties, inaccuracies, and disharmonies, in the economic
system will result:
a. Unemployment
b. Inflation They Are Fundamental Risks
c. Deflation
d. War
Risk associated with extraordinary natural disturbances such as:
e. Drought
f. Earthquakes Are Fundamental risks
g. Flood
(b) Particular Risks
-Involve losses that arise out of individual events and that are felt by individuals rather than by
the entire group.
-Particular risks are risks personal in origin and effect.
-Are more readily controlled.

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 Example: The risk of death or disability from non-occupational causes.
-The risk of legal liability for personal injury or property damage to others.
Note: Particular risks are always pure risks, where as fundamental risks include pure and
speculative risks.

1.3 WHY STUDY RISK?

“Man is the only case in nature where life becomes aware of itself”.
People make various decisions in their life. However, man makes numerous choices and
decisions on uncertain conditions.
People have to decide because we are living in the uncertain environment. Thus, risks must be
taken. Uncertainty is pervasive. We don’t know the future.
Therefore, in order to minimize the adverse effect of risk, we have to study it.
People in general are apprehensive. i.e. they don’t know at the future.
When a person gets married, goes into business, decides to attend college, buys a house or does
innumerable other things that affect his life in any important way, he is naturally some what
apprehensive over the outcome.
People dislike the decision in dark. They usually like the decision when the future is bright.

Illustration:
Consider a person who may have an option to purchase a home by taking a loan from a bank
to be repaid within 20 years. Before he/she buys the house, he/she will raise various questions.
Such as:
i) Is the level of my income high enough and certain enough to enable me make the
payments for 20 years?
ii) How can I protect the investments for my family’s benefit in case I should die before the
loan is repaid?
iii) Will my health permit me to continue to work for 20 years?
iv) Would it be better to rent rather than to buy and use my funds for other purposes?
v) How can I protect my investments in case of fire, flood, windstorm, or other peril?

Exercise:
1. What is objective risk? How does it differ from subjective risks?
2. Explain peril, hazard, physical hazard, moral hard, and morale hazard.
3. Indicate the major types of pure risks that are associated with great financial and economic
insecurity
4. Why pure risk harmful to society? Explain
5. Distinguish between static and dynamic risks; fundamental and particular risks

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