Principles of Risk Management and Insurance, 13th Edition

Characteristics of an Ideally Insurable Risk

Private insurers generally insure only pure risks. However, some pure risks are not privately insurable. From the viewpoint of a private insurer, an insurable risk ideally should have certain characteristics. There are ideally six characteristics of an insurable risk:

• There must be a large number of exposure units.

• The loss must be accidental and unintentional.

• The loss must be determinable and measurable.

• The loss should not be catastrophic.

• The chance of loss must be calculable.

• The premium must be economically feasible.

Large Number of Exposure Units

The first requirement of an insurable risk is a large number of exposure units. Ideally, there should be a large group of roughly similar, but not ...