Define risk. Distinguish it with regard to uncertainty.

Risk is a possibility of an undesirable deviation from a desired outcome that is expected or the uncertainty about what outcome will occur. Hence risk with regard to insurance is defined as uncertainty associated with the occurrence of a loss. The term risk is used to identify the property or life being insured.

As risk is defined as uncertainty, it can be distinguished as objective risk and subjective risk.
Objective risk is the variation of actual loss from expected loss. It declines as the number of exposures increase. It can be calculated statistically by using measures of dispersion. When the numbers of exposures increase, the insurer is able to predict its future loss relying on the law of large numbers. Subjective risk is defined as uncertainty based on an individual’s state of mind. If a person experiences mental uncertainty concerning the occurrence of loss, the person’s behaviour is affected.