Speculative Risk

Speculative risks include the chance of gain, which conflicts with the indemnity principle that the insured should not profit from a loss — A speculative risk involves the possibility of gain or loss, such as gambling or starting a business. Insurance operates on the indemnity principle: the insured should be restored to the pre-loss financial position, not made better off. If a loss carried a chance of gain, the insured could profit from the event, which would encourage risk-taking and undermine the entire insurance mechanism. Insurance therefore handles pure risks, where the only outcomes are loss or no loss.

National insurance concept

They involve the chance of gain as well as loss, so the loss is not fortuitous and the insured could profit from the arrangement — Insurance is designed for pure risks, which offer only the possibility of loss or no loss. A speculative risk offers both the chance of gain and the chance of loss, as in gambling or a business venture. If the insured could profit from the arrangement, the element of fortuity is destroyed and insurance would become a wager rather than a risk-spreading device. Because an insurable loss must be accidental and unintended, speculative risks fall outside the category of insurable risk even when the potential loss is very large.

National insurance concept