What are the two main categories of risk?

The two main categories of risk are pure risk and speculative risk. Pure risk involves scenarios where there is a possibility of loss or no loss, and no chance of gaining. This type of risk is often insurable, such as risks associated with natural disasters or theft. In contrast, speculative risk involves scenarios where there is a potential for loss, but also the possibility of gain, like investments in stocks or entrepreneurship.

Understanding the distinction between these two categories is crucial for risk management, as it helps professionals determine whether a risk can be transferred through insurance or whether it should be managed differently through strategic planning and investment analysis. This clear categorization aids in developing risk management strategies appropriate for different types of risks faced by organizations.