Static Risk

Static risk refers to the risk of loss resulting from irregular events that occur outside the norms of predictability.

These irregular events are often caused by unpredictable human behavior or from natural events.

For example, if a stable economy stays constant, then events that did not result from this constance can be categorized as static risk by a business.

A property is also not expected to catch fire or be burglarized under normal circumstances.

Static risk is the very basis of what insurance is centered around.

Most insurance policies are conceptualized around low-probability events as there is a low likelihood of them occurring. And thus, a low likelihood of people making claims.

However, the fear of these events happening is what motivates people to purchase insurance policies.

Personal accident policies is a great example.

For a person who is working a desk job, the probability of him or her running into an accident at work and suffering grave injury is very low. So it makes good sense to entice one to buy personal accident plans with low premiums.

This is unlike whole life insurance where people are destined to die one day.

Because of the tendency for static risk to be low, insurers spend most of their time developing and selling policies that provide coverage for such risks.

Most static risks that consumers can identify usually already has a type of insurance policy for it.

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