Which type of risk can be mitigated through insurance?

The correct answer is pure risk. Pure risk refers to risks that result in a loss or no loss, meaning there is no opportunity for financial gain. It includes risks such as property damage, liability claims, and personal injury. Insurance is specifically designed to address these types of risks, providing financial protection against potential losses. By transferring the financial burden of a loss to an insurance provider, individuals and businesses can manage the unpredictability associated with pure risks effectively.

In contrast, market risk, systemic risk, and credit risk involve elements of uncertainty that cannot be transferred or mitigated through traditional insurance. Market risk relates to the potential losses due to changes in market conditions, systemic risk is associated with the broader economic system and can affect many participants simultaneously, and credit risk pertains to the possibility of a borrower defaulting on a loan. These risks require different strategies for management, such as diversification for market risk and credit analysis for credit risk, rather than insurance coverage.