Risk

An assessment of risk is the underlying principle of the insurance industry. Professionals in the field of risk analysis employ a variety of formulas, both mathematical and statistical, which they apply to life events and scenarios. These professionals, called actuaries, determine the likelihood that given events will occur and based on those estimates insurance companies underwrite or develop insurance policy in response to the perceived level of risk attached to given situations.

Those activities or events that are judged to have a higher level of risk are a bad investment for the insurance company. This does not necessarily mean, however that such events are not eligible for insurance, but the policies will carry a higher deductible (the amount of damage for which a policy holder is personally, financially responsible) and higher premiums (the monthly fees paid for the holding of the policy.)

In the came of home owner's policies, some "acts of God" or natural disasters, will not be covered on standard policies due to the high risk of their occurrence in given regions and will require specialized insurance policies. More Terms Explained