Why do insurers insure 'pure risks' only? Define 'risk' and distinguish between 'pure risk' and 'speculative risk'.

Pure (static) risk is a situation in which there are only the possibilities of loss or no loss. The only outcome of pure risks are adverse (in a loss) or neutral (with no loss). never beneficial. Examples of pure risks include premature death, occupational disability, catastrophic medical expenses, and damage to property due to fire, lightning, or flood. Insurance companies generally insure only pure risks through their commercial, personal and liability insurance policies, since the law of large numbers can be applied more easily to pure risks than to speculative risks. The law of large numbers is important in insurance because it enables insurers to predict loss figures in advance. Risk is the potential of loss (an undesirable outcome, however not necessarily so) resulting from a given action, activity and/or inaction. The notion implies that a choice having an influence on the outcome sometimes exists (or existed). Potential losses themselves may also be called "risks". Any human endeavor carries some risk, but some are much riskier than others. Pure (static) risk is a situation in which there are only the possibilities of loss or no loss, as oppose to loss or profit with speculative risk. Speculative (dynamic) risk is a situation in which either profit OR loss is possible. Examples of speculative risks are betting on a horse race, investing in stocks, bonds and real estate. In Business, the decision to venture into a new market, purchase new equipment's, diversify on the existing product line, expand or contract areas of operations, commit more to advertising, borrow additional capital, etc., carry risks which are inherent to the business. Speculative risk is uninsurable. Finally, society as a whole may benefit from a speculative risk even though a loss occurs, but it is harmed if a pure risk is present and a loss occurs. Therefore, the insurers insure only pure risks.