I.A · Basic Insurance Concepts and Principles
Six requisites of an insurable risk
An insurer can only price a risk it can predict. An ideally insurable risk has six features:
The loss is due to chance: accidental, not intentional, and not certain to happen.
The loss is definite and measurable in money.
The loss is statistically predictable.
The loss is not catastrophic: one event must not be able to bankrupt the insurer.
There is a large number of similar exposure units, so the law of large numbers can work.
Coverage is not mandatory for the insurer: the insurer may choose which applicants to accept.
California's insurable events rule (Ins. Code §250): any contingent or unknown event, whether past or future, that may damage a person who has an insurable interest, or create a liability against that person, may be insured against, subject to the Code.
Remember
· Catastrophic losses are NOT ideally insurable.
· Chance, measurable, predictable, not catastrophic, large similar group, insurer may select.
· §250: contingent or unknown events, past or future, may be insured against.
Exam prep classes
Life and real estate license exam prep with experienced instructors.
Learn more ›