what is uninsurable risk 
uninsurable risk is a condition that poses an unknowable or unacceptable risk of loss or a situation in which the insurance would be against the law insurance companies limit their losses by not taking on certain risks that are very likely to result in a loss many states offer insurance for otherwise uninsurable risks through their high risk pools however lifetime benefits may be capped and premiums may be expensive understanding uninsurable riskmany people buy insurance even though there s a low probability that the insured will need the policy young adults for example might buy life insurance or health insurance through their employers despite the unlikelihood of needing the coverage for many years others who are at higher risk also buy the insurance and both groups pay their monthly premiums to the insurance company insurance companies practice a policy called risk pooling which is the collection of the premiums from those who are less likely to need the insurance called low risk and those who are more likely to need the insurance called high risk by grouping a large number of people together in a pool the low risk individuals essentially pay through their premiums for the cost of the high risk individuals if an insurance company covered uninsurable risks there would likely be an increase in payouts for insurance claims reducing the funds in the insurance pool as a result uninsurable risks are not included in standard insurance coverage packages for insurance to work most of the group has to go without a loss otherwise the insurance company runs out of money a risk is insurable when the risk is considered calculable and can be measured and tracked by actuaries who study data and probabilities for insurance companies if a river floods 800 times in a century the flood is an insurable risk however the insurer can t insure against a marriage failing with so many factors there s no way an actuary could reasonably calculate a definitive probability of success or failure that s the essence of uninsurable risk high risk coverage is available from some insurance companies and people with uninsurable risks might be able to get some level of coverage this way but coverage will likely be limited and premiums more expensive some governments offer insurance coverage when regular commercial insurance markets can t accept the risk government flood insurance for instance is available in high risk areas because regular insurance companies won t write the policies special considerationscalling a risk uninsurable is not a simple conclusion to make some risks are clearly uninsurable because of the law such as coverage for criminal fines and penalties since the law forbids such coverage however there isn t really a conclusive comprehensive list of all the uninsurable risks out there part of the job of corporate risk managers is to identify their organizational exposures as best they can and then work to manage or eliminate those risks sometimes commercial insurance can be used to remove the bulk of that risk but it s not always possible examples of uninsurable risksalthough each insurance company may have its own policies regarding what they consider insurable and uninsurable below are examples of risks that might be considered uninsurable by many companies if an insurance company considers an event such as a natural disaster or a catastrophe to be too likely to occur the event will likely be uninsurable if a home for example is situated on the coast where there are frequent hurricanes and damage to properties insurance companies might consider the risk of damage too likely to occur as a result the risk would be uninsurable meaning insurance companies wouldn t provide any coverage caused by that particular uninsurable event homes that are located in flood zones or in areas where there are frequent landslides might also be considered uninsurable risks to insurance companies individuals and homeowners would likely need to seek help from the government or an insurance company that provides high risk coverage a company can experience damage to its reputation for example a recall of a company s products due to safety hazards could damage the company s name and reputation an insurance company would face a difficult challenge in determining a monetary value of a company s reputation in order to insure that amount there are too many factors and variables involved for an insurer to value the reputation of one company versus another and too many things could go wrong regulations are laws issued by government agencies designed to protect its citizens from wrongful actions by corporations or other parties regulations can change frequently and many businesses struggle to keep up with the dynamic regulatory landscape examples of regulations include new laws to protect the environment or changes in food safety laws on how food should be processed insurance companies would have a difficult task in predicting the probability of regulatory changes and assigning a monetary value to the damage caused to a company as a result of that change trade secret risk can involve national security when a government employee takes information from a computer the risk can also occur in companies when an employee might take a client list home and offer it to the competition in exchange for a job companies would have difficulty finding an insurer that would cover the damage if its trade secrets were stolen or given out multinational corporations face challenges when they open up operations overseas companies that are located developing nations may experience political risk such as political upheaval if the government is overthrown or collapses developing nations often do not have the financial stability of developed countries and as a result can default or not pay its financial obligations a nationwide default might include the inability to pay for public services or a country being unable to pay its national debt insurance companies would not be able to forecast the likelihood of a political event occurring and the cost of insuring that event would likely be prohibitive a pandemic is an outbreak of a disease that spreads over an entire country or over the whole world the risk of a pandemic are nearly impossible for insurance companies to predict and estimate the damages that could be caused to individuals and corporations businesses might be able to use other insurance policies to recoup some of the costs of a pandemic for example a company might have insurance that covers stoppages in their supply chain such as being unable to buy raw materials or inventory as with the other uninsurable risks there are some insurance companies willing to cover the risks associated with a pandemic however there could be limits to the coverage within those policies and hefty premiums 