Which of the following best defines 'risk assessment' in insurance?

Risk assessment in insurance involves evaluating potential losses that an insurer might face. This process is crucial as it helps insurers determine the level of risk associated with providing coverage to policyholders. By analyzing various factors such as the likelihood of incidents, the potential severity of claims, and the characteristics of the insured entities, insurance companies can make informed decisions about underwriting and pricing policies.

The primary goal of risk assessment is to measure and manage risk, enabling insurers to establish appropriate premiums and ensure they maintain financial stability while protecting against unforeseen losses. This systematic evaluation forms the backbone of effective insurance operations and helps in mitigating potential financial disruptions.