What is the principle that describes the risk of loss that occurs from an uninsured party in a business transaction?

The principle that pertains to the risk of loss stemming from an uninsured party in a business transaction is known as adverse selection. This concept arises in situations where one party in a transaction has more information about the risk they pose than the other party. In the context of insurance, it often leads to a scenario where those most likely to incur losses are the ones more inclined to seek insurance coverage, while those who are less risky might opt out.

This imbalance can result in higher costs for the insurer and potential losses, as they may end up insuring a higher proportion of high-risk individuals than expected. In business transactions, unchecked adverse selection could lead to significant financial pitfalls if risks are not adequately managed, particularly when one party is uninsured and the likelihood of loss increases.

Other concepts like risk aversion and moral hazard address different aspects of risk associated with decision-making and behavior after obtaining insurance, but they do not directly encapsulate the situation described in the question. Thus, adverse selection is the principle that accurately captures the risk of loss due to the involvement of an uninsured party.