Types of insurance risks - SS2 Commerce Lesson Note

When it comes to risks, we can broadly categorize them into two types: fundamental risks and partial risks.

Fundamental Risk

Fundamental risks, also known as systematic risks or market risks, are risks that affect the overall market or economy as a whole. They are uncontrollable and impact all investments in the market. These risks are beyond the control of individual investors or businesses and are influenced by factors such as economic conditions, political events, natural disasters, or global market trends. Fundamental risks cannot be eliminated through diversification since they affect the entire market. Examples of fundamental risks include recessions, inflation, interest rate changes, or geopolitical conflicts.

Partial Risks

Partial risks, also known as unsystematic risks or specific risks, are risks that are unique to a particular investment or business. These risks are specific to a company, industry, or asset and can be managed to some extent. Partial risks can be reduced through diversification, proper risk management strategies, or company-specific actions. Unlike fundamental risks, partial risks are more controllable and can be minimized or eliminated by taking appropriate measures. Examples of partial risks include company-specific factors like management issues, competition, technological changes, supply chain disruptions, or legal and regulatory risks.