How is 'risk' defined in the insurance context?

In the insurance context, 'risk' is defined as the possibility of a loss occurring. This definition encompasses any situation where there is uncertainty about the occurrence of an event that can lead to financial loss. Insurance operates on the principle of risk management, where the primary objective is to protect against potential losses by pooling resources from many insured individuals.

When assessing risk, insurers evaluate factors such as the likelihood of an event happening and the potential financial impact if it does. This understanding is fundamental to how insurance products are designed and priced.

In contrast, the other options fail to capture the essence of risk in insurance. The potential for gains in an investment refers to investment risk rather than insurance. The uncertainty of returns on investments also pertains to investment concepts, not directly to insurance risk. Lastly, the measure of financial stability of an insurer relates to its ability to meet obligations and does not specifically address the concept of risk itself, which is focused on the likelihood and impact of losses rather than the insurer's financial condition.