The term “risk” is fundamental to insurance. From an insurance point of view risk is the uncertainty of financial loss. Risk is that which you insure against, i.e. theft or fire; it’s a situation that cannot be controlled or perfectly foreseen. It is also called the hazard exposure, or the chance of loss. The word peril is also used to describe a risk. To be more detailed a peril refers to the cause of a loss, such as a fire or explosion, while a hazard is the condition that may increase the chance or the severity of a loss. Faulty wiring is a fire hazard.In an insurance policy the word risk can describe the subject matter and it is also used to refer to the insured person sometimes.

In insurance the risk is transferred from the insured to the insurer who accepts responsibility to carry the risk in exchange for the payment of a premium. In short term insurance, such as car insurance, risk always has to do with an uncertainty, for example a car accident or theft.

Insurance companies also refer to the degree of risk – the ranking of risk by the possibility of it happening and the severity of the risk. Risk profiles, drawn up by actuaries, are used to determine the degree of risk. As an example female drivers have been found to be a lesser risk than male drivers. This will influence the actual insurance premium paid by females.