Are All Business Risks Insurable? Exploring Insurable and Non-Insurable Risks

Running a business involves navigating various risks that have the potential to disrupt operations and jeopardize financial stability. Protecting your business requires a comprehensive understanding of these risks. While business insurance acts as a crucial safety net against potential losses, it's essential to recognize that not all risks can be insured.

If you’re running a business, understanding the difference between insurable and non-insurable risks is essential. With the right information, you can make well-informed decisions about where to invest your resources, prioritize your efforts, and chart a course toward long-term success. Partnering with a trusted insurance company like Hotchkiss Insurance is important if you want to gain access to invaluable expertise and support that enables you to comprehend your risk landscape and have a better understanding of your current options.

In this article, we will explore insurable and non-insurable risks, offering valuable insights into their definitions, providing real-life examples, and emphasizing the significance of effectively mitigating them.

Types of Business Risks

Before exploring insurable and non-insurable risks, let's briefly touch upon the various risks that businesses commonly face. These risks can broadly be categorized into the following:

Property Risks

Property risks encompass the potential loss or damage to physical assets, such as buildings, equipment, inventory, and other tangible property. Examples include fire, theft, vandalism, and natural disasters like floods or earthquakes.

Liability Risks

Liability risks arise from potential legal obligations and financial losses due to claims filed by third parties. This includes bodily injury or property damage to others resulting from the actions of your business, such as slip and fall accidents or product liability claims.

Business Interruption Risks

Business interruption risks refer to the potential losses incurred when a business is unable to operate due to unforeseen events. These events could include natural disasters, equipment breakdowns, or supply chain disruptions. The resulting loss of revenue and additional expenses during the downtime can be financially devastating.

Employee-Related Risks

Employee-related risks pertain to issues that may arise from your workforce. This includes employee injuries, labor disputes, and employment practices liability claims, such as discrimination or wrongful termination lawsuits.

What are insurable business risks?

Insurable business risks in business are those that insurance companies typically cover through various insurance policies. These risks are characterized by certain key factors, including:

Calculable Probability

Insurable risks are events that can be predicted with a reasonable degree of certainty based on historical data and statistical analysis. Insurance companies use this information to assess the likelihood of these events and determine the premiums accordingly.

Large Number of Similar Exposures

Insurable risks affect a large number of similar businesses or individuals. This allows insurance companies to spread the risk across a broad pool of policyholders, enabling them to provide coverage at reasonable costs.

Insurable business risks examples include:

  • Property damage due to fire, theft, or natural disasters.

  • Losses caused by business interruptions due to covered perils like fires or storms.

  • Liability claims arising from customer injuries on business premises.

  • Employee-related risks, such as workers' compensation claims or employment practices liability.

How Insurability is Determined

Insurance companies determine the insurability of risks based on several factors. These factors include:


Risks that can be predicted and analyzed with a reasonable level of certainty are more likely to be insurable. This allows insurers to assess the potential losses accurately and set appropriate premiums.


Insurable risks are those that can be measured or quantified. This enables insurers to assess the financial impact of potential losses and determine appropriate coverage limits.


Insurable risks are generally those that businesses can take measures to control or mitigate—for example, implementing safety protocols to reduce the risk of workplace accidents or installing security systems to deter theft.

What are non-insurable business risks?

Non-insurable business risks, as the name suggests, are risks that insurance companies typically do not provide coverage for. These risks possess certain characteristics that make them challenging or impossible to insure. Non-insurable risks often exhibit the following characteristics:


Non-insurable risks are events that are difficult to predict or assess with reasonable certainty. They may include catastrophic events like war, terrorism, or political unrest, which are highly volatile and challenging to quantify in probability.

Catastrophic Magnitude

Non-insurable risks often involve losses of such a massive scale that insurance companies cannot bear the financial burden alone. For instance, widespread natural disasters like hurricanes or earthquakes can cause extensive damage across entire regions, making it economically unviable for insurers to provide coverage for all affected businesses. However, certain types of coverage can still be obtained through additional policies. For example, earthquakes, wind hail, and flood insurance can be purchased separately to provide protection specifically tailored to these risks. These additional policies offer individuals and businesses the opportunity to mitigate their exposure to such perils and ensure they have appropriate coverage in place.

Moral Hazard

Non-insurable risks may arise from intentional or fraudulent acts by the insured party. Insurance companies are cautious about covering risks associated with dishonest or unlawful behavior that increases the likelihood of losses.

Examples of non-insurable business risks include:

  • Losses resulting from war, acts of terrorism, or civil unrest.

  • Damage caused by nuclear accidents or radioactive contamination.

  • Fines and penalties imposed by regulatory authorities due to legal violations.

  • Losses incurred from illegal activities or intentional acts of the insured party.

How to Mitigate Non-Insurable Risks

While non-insurable risks cannot be transferred to insurance policies, businesses can take proactive measures to mitigate their impact. Here are some strategies to consider:

Risk Avoidance

Identify non-insurable risks and assess whether they can be avoided altogether. For example, if a business operates in a politically unstable region, it may consider relocating to a more stable location to mitigate the risk of political unrest.

Risk Reduction

Implement risk management practices and controls to minimize the likelihood and impact of non-insurable risks. This may include robust security measures, disaster preparedness plans, or compliance programs to reduce the risk of legal violations. At Hotchkiss, we understand the importance of proactive risk management for businesses. That's why we have a dedicated claim and loss prevention department focused on helping businesses minimize their exposure to risks.


Spreading business operations across different locations, markets, or product lines can help mitigate the impact of non-insurable risks. By diversifying their operations, businesses can reduce their vulnerability to a single catastrophic event or economic downturn.

Contingency Planning

Develop contingency plans to address potential non-insurable risks. This may involve establishing emergency funds, building strong relationships with suppliers, or creating alternative distribution channels to ensure business continuity in the face of unforeseen events.

Navigating Business Risks with Insurance: Safeguarding Your Business Success

Not all business risks are insurable. While insurance plays a vital role in protecting businesses from many potential risks, some risks fall outside the scope of insurability due to their unpredictable nature, catastrophic magnitude, or moral hazard.

Understanding the distinction between insurable and non-insurable risks is crucial for businesses to effectively manage their risk exposure. This is where partnering with an experienced insurance company like Hotchkiss Insurance comes into play. Doing so can help you understand your risk landscape, identify insurable risks, and navigate the complexities of insurance options.

By implementing appropriate risk management strategies, businesses can mitigate the impact of non-insurable risks and ensure their long-term resilience. Remember, proactive risk assessment and planning are key to safeguarding your business's future.