Uninsurable risk is a situation in which no insurer is willing to provide coverage. Taking on an uninsurable risk would otherwise put an insurer at risk of very large payouts that could threaten its solvency. The following are situations that can give rise to such risk:
The amount of risk is too difficult to quantify
The cost of the insurance would be too great
Incidents causing losses are expected to be quite frequent
Providing coverage is illegal, such as reimbursing for an illegal act
When a risk is uninsurable, a company either restructures its business to avoid the risk or creates a reserve to cover any losses that may arise.