What term describes a situation in which only the possibilities of loss or no loss exist?

The term that describes a situation where only the possibilities of loss or no loss exist is known as pure risk. This type of risk is characterized by outcomes that are definite and can only result in a negative financial impact (loss) or a situation where there is no loss at all. For example, risks associated with natural disasters, theft, or accidents are considered pure risks since they can either happen, causing a loss, or not happen, resulting in no loss.

In contrast, speculative risk involves scenarios that can lead to a gain or a loss, such as investments in the stock market or gambling. Dynamic risk involves changes in the environment that can affect the likelihood of risk exposure, and moral hazard refers to the risk that a party has not entered into a contract in good faith, such as when an insured individual might engage in riskier behavior because they are covered by insurance.

Understanding pure risk is fundamental in the insurance industry, as it is the basis for underwriting and the creation of insurance policies that protect against these specific types of losses.