What is risk?

Risk is always present in people's lives; it is apparent in every decision we make every day and in every activity we engage in, whether professional or personal.

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Risk is always present in people’s lives; it is apparent in every decision we make every day and in every activity we engage in, whether professional or personal.

Indeed, certain risks are sometimes assumed simply because you live in a certain geographical location.

For example, if you live in the Gulf of Mexico, you are exposed to the risk that a hurricane could cause major damage.

What is risk?

Risk is something that may happen in the near or distant future, that is present in any activity that is carried out, and that is of concern because of its consequences.

But it does not only have a negative side, related to economic losses or physical or moral damages; it can also be understood in a positive way when exposure to certain risks enables profits to be made (for example, by gambling to win money, or by investing in a certain business to obtain future profits).

Insurance works in both of these two areas, being one of the most effective responses to the consequences of risk and as a way of guaranteeing against foreseen future situations in people’s lives.

What should we do when faced with risk?

The first thing is to recognize the risk, in other words, to be aware that it exists and that it is likely to occur. If we do not identify it, it is difficult to take appropriate measures to deal with it.

The next step is to assess its significance by analyzing its likelihood of occurrence and its consequences. This analysis is influenced by the information that each person possesses: knowing the limits and characteristics of a situation with certainty is not the same as simply being aware that it exists. Many other factors are also involved:  from culture or state of mind to the way of life or beliefs of each person.

The final step is to select the best response from among the different alternatives. Each individual searches for that ideal response, adapting it to their particular resources, and acts accordingly in order to obtain the security they consider sufficient.

  • Prevention: minimizing the likelihood of an adverse event occurring, but if it does occur, you will not be protected against it.
  • Saving: having a financial fund that we can use if the adverse event occurs so that we can offset its consequences.
  • Insurance: transferring the risk, in whole or in part, to a third party, the insurance company.

Most people tend to protect themselves (insurance), and only a small percentage of the population is prone to “taking risks” (prevention or savings), leaving themselves open to risks in exchange for greater personal benefit or satisfaction.

Depending on how risk-averse an individual is, what their attitude to risk is and how well informed they are, they take different measures to try to eliminate or reduce the consequences of risk.