Reference no: EM131423112

Pure vs Speculative Risk

Read the following two post and respond to the 2nd post

First post

It seems to be that pure risk is less difficult to mitigate because it only deals with if there is a loss or not. While speculative risk deals with gain or loss (profit or loss). Any vehicles financed by my company are mitigated by insurance that pay if a vehicle is damaged or do not pay if a vehicle is not damaged. It is much easier to mitigate yes or no than levels of mitigation such as in speculating in the stock market with money gained from customer deposits. This requires different levels of mitigation, which includes but is not limited to diversification and hedging, much more difficult than purchasing premiums that pay if a vehicle is damaged and do not if there is no damage.

Second post

Thanks for this post. I like what you have here. However, what about insufficient insurance coverage. How might that affect profits? How would you suggest your organization go about determining if an identified risk is pure or speculative. Can a situation cause one to become the other? Class, we need your coverage here!