🌀 What is Risk?

Risk means uncertainty.
It is the possibility that a loss may happen.

There may be loss, or there may not be — that uncertainty is risk.

👇 Example

You drive your car daily.
There is a chance you might meet with an accident.

That chance = Risk.

No loss yet — only the possibility of loss.

💡 Key Point

Insurance exists because risk exists.

💥 What is Peril?

Peril is the actual cause of loss.

It is the event that creates the damage.

👇 Example

If a house catches fire,
Fire is the peril.

If someone’s phone is stolen,
Theft is the peril.

💡 Key Point

Risk is the chance of loss.
Peril is what actually causes the loss.

🧨 What is Hazard?

Hazard is anything that increases the chance of a loss happening — or makes the loss worse.

Hazard does not cause loss directly.
It only pushes the risk higher.

👇 Example

• Driving with worn-out tyres

• Storing petrol cans in a shop

• Faulty old wiring in a building

These do not cause loss by themselves…
but they increase the possibility that a peril like fire or accident may occur.

🔍 The Difference in One Sentence

• Risk = Possibility that something bad may happen

• Peril = The event that causes the bad thing

• Hazard = The condition that makes the bad thing more likely or severe

🚗 Real-Life Story to Understand

Arjun drives his scooter every day.

Scenario

• His tyres are old and slippery → Hazard

• Because of that, he may skid → Risk

• One day, he slips on a wet road and crashes → Peril (Accident)

He gets injured and the scooter is damaged.

And insurance steps in:

Not because of the old tyres (hazard),
but because the peril (accident) occurred.

🎯 Why This Matters for Advisors

When you understand this trio, you can:

✅ Explain policies confidently
✅ Advise customers correctly
✅ Identify dangerous situations (hazards)
✅ Earn trust by educating clients properly

And yes — this is a common exam topic in IC-01.

🧠 Quick Self-Test

Fill in the blanks mentally 👇

1. Driving has a ________ of accident.

2. Accident happens due to skidding — this is the ________.

3. Bald tyres made the accident more likely — this is the ________.

Answers:

1. Risk

2. Peril

3. Hazard

If you got all right — you’re learning fast 👏

✅ Final Takeaway

Risk is uncertainty.
Peril is the cause.
Hazard increases the chance.

Remember this sentence — it will help you in exams and in real client conversations.

Example:

A house is damaged when:

• Heavy rain causes flooding,

• The flood leads to a short circuit,

• The short circuit causes fire.

If the policy covers fire but excludes flood — the claim will still be paid, because fire (the proximate cause) was the direct cause of damage.

But if the property was damaged only by flood water, the claim would be rejected (flood = excluded peril).

⚖️ Why It’s Important:

✅ Helps determine whether a claim is payable or not
✅ Avoids confusion when multiple causes are involved
✅ Ensures insurers pay only for covered perils

📘 Applies to:

All types of insurance where loss has multiple contributing factors — fire, marine, motor, etc.