The risk that cannot be covered by an insurance contract due to efficiency reasons. Insurance firms usually don’t offer to cover this kind of risk as the potential profit doesn’t compensate for the risks involved, and in most cases insurance firms turn no profit from coverage. Moreover, the likely future losses associated with such risks cannot be estimated and calculated at the time of contract.

Insurance firms usually determine acceptable types of risks for which insurance coverage can be provided on a commercial basis- that is, the premiums charged can cover possible claims and operating expenses as well as expected profits. All other risks are deemed non-insurable (insurability is questionable). In other words, non-insurable risks may not be offered and covered on a commercial basis (the costs of their coverage exceed the benefits to an insurance firm). Insurance companies typically cover the so-called pure risks- i.e., the risks that have no possibility or a very small possibility of occurrence. The prime examples are property damage risks, such as earthquakes, hurricanes, floods, fires, accidents, etc. Pure risks associated with liability include litigation. All such risks are insurable in nature. On the other extreme, there are speculative risks- i.e., risks that have a great chance or possibility that losses would happen and consequently a great number of claim will be filed. Gambling and investments are typical examples of these risks. The mainstream insurance market deems speculative risks to be non-insurable. Another example of non-insurable risks is where the demand for a commodity cannot be predicted with certainty due to a change in consumers’ taste and reliance on historical data for that purpose will be misleading.

It worth-noting that the dividing line between insurable and non-insurable risks is very thin at times. In countries where seismic activities are commonplace, earthquakes will be considered non-insurable, and vice versa.