Difficulty: Medium

Average Score: 54%

Risks are generally NOT insurable if

Rationale

the loss is expected.

Risks that are insurable typically involve uncertain events. When a loss is expected, it becomes uninsurable because insurance operates on the principle of risk pooling among many individuals experiencing uncertain losses.

A (there are many individuals who may also experience a similar loss) YOUR ANSWER

While a large number of individuals facing similar risks can actually make insurance more viable, as it allows for risk pooling, this condition alone does not determine insurability. In fact, having many individuals with similar risks can enhance the insurability of those risks, provided they are uncertain.

B (the policyholder has a policy from another insurer) YOUR ANSWER

Having multiple policies from different insurers does not inherently make a risk uninsurable. In fact, individuals often hold multiple insurance policies to cover various risks, and this does not affect the insurability of the risks themselves. Insurers may even share risks through reinsurance.

C (deductibles would be required) YOUR ANSWER

The presence of deductibles is a standard feature in many insurance policies and does not preclude insurability. Deductibles are designed to share risk between the insurer and the insured, as they require the policyholder to bear a portion of the loss before insurance coverage kicks in.

D (the loss is expected) CORRECT

When the loss is expected, it means the outcome is predictable, which eliminates the uncertainty necessary for insurance. Insurers cannot pool expected losses effectively, as they rely on the variability of risk to remain profitable.

Conclusion

Insurance relies on the principle of uncertainty; therefore, risks that are expected cannot be insured. The inability to predict the timing or occurrence of losses is fundamental to the insurability of risks. Other factors, such as the number of individuals affected, existing policies, and deductibles, do not negate the potential for insurability but rather influence the terms and conditions of coverage.

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