insurable risk
Insurable Risk is a possible loss that an insurance company is willing to accept because it can be measured, priced, and spread across many people.
In plain English
Almost everyone has had that moment of arguing with a mechanic or a doctor over what should have been a simple bill, and thinking, someone needs to have planned for this before it happened. That instinct, that something bad and costly could happen and it would be wise to prepare for it in advance, is the whole idea behind insurable risk.
Not every risk qualifies. An insurance company is not in the business of guessing. It wants risks that are real but not certain, that can happen to some people and not others, and that can be measured with numbers from the past. Your house burning down fits that description. So does your car getting stolen in Lagos traffic, or a small business owner in Kano losing stock to a fire.
What does not fit is something you already know will happen, or something so vague nobody can price it. An insurer cannot sell you a policy against ageing, because everyone ages and there is no uncertainty in it. But they can sell you a policy against dying earlier than expected, because that is uncertain enough to calculate odds for.
A Nigerian working in Manchester who sends money home every month understands this without needing the textbook definition. She insures her rented flat because a burst pipe or a burglary is possible but not guaranteed. She does not try to insure against the certainty that rent will increase next year, because that is not a risk, that is just life.
Insurers also want risks that will not affect too many people at once, in the same way, at the same time. This is why floods in one whole region can be hard to insure cheaply, because if everyone's house floods together, the pool of money will not stretch far enough to cover everyone.
A market trader in Onitsha pays ₦18,000 a year for a fire policy on her shop and stock, because a fire is possible but rare, and if it happens the loss could be ₦900,000 or more, money she does not have sitting idle.
Questions people ask
Why can't I insure against something I know will happen, like my car ageing?
Insurance depends on uncertainty. If an event is guaranteed, there is no risk to spread across a pool of people, so no insurer will price a policy for it. Wear and tear from age is expected, not a surprise loss.
Can any risk become insurable if enough people want cover for it?
Not quite. The risk still needs to be measurable using past data, affect people independently rather than all at once, and not be something the policyholder can easily cause on purpose. Without those features, insurers cannot price it fairly.
Is a risk still insurable if it is very unlikely to happen?
Yes, in fact unlikely but costly events are exactly what insurance is built for. A house fire is rare for any one household, but because it is possible and expensive, an insurer can collect small amounts from many people to cover the few who suffer the loss.
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