In an insurance context, what is meant by 'aleatory'?

In an insurance context, 'aleatory' refers to the inherent element of chance or uncertainty involved in risk assessment and contract agreements. Insurance contracts are typically characterized by an unequal exchange between the insurer and the insured; for example, the insured pays a relatively small premium in return for the potential of a much larger benefit if a specific event occurs. This relationship embodies the concept of aleatory because the insurer's obligation to pay benefits is contingent upon uncertain events, such as illness, accidents, or property damage.

The element of chance highlights that the risks being insured against may or may not materialize, meaning that while premiums are collected, the insurer may not have to pay out at all, or they might pay out significantly more than what they've collected through premiums depending on the situation. This constitutes the fundamental nature of insurance as a risk management tool, where both parties understand the risks associated and the potential outcomes that can arise from their agreement.