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

In the context of insurance, the term "risk" specifically refers to the likelihood of a loss occurring. It encompasses the uncertainty associated with potential financial losses that can arise due to unforeseen events. Understanding risk is crucial for insurers as it affects underwriting decisions, premium calculations, and policy structuring.

While the subject of the insurance contract relates to what is being insured – such as a vehicle, a home, or a business – it does not define the term "risk." Instead, the risk is fundamentally about the probability and exposure to potential loss associated with that subject. Thus, understanding risk helps in assessing and managing the financial implications of insuring specific objects or events, guiding the insurer in determining coverage terms and conditions.