Content blocks render in order below. Each block type keeps the same fixed styling everywhere in the platform — edit the text, the layout stays consistent.
Though insurance may be one of the most effective ways to handle risks, not all risks are insurable. As noted earlier, insurers will insure only pure risks, or those that involve only the chance of loss with no chance of gain. However, not all pure risks are insurable. Certain characteristics or elements must be present before a pure risk can be insured.
The loss must be due to chance (accidental). In order to be insurable, a risk must involve the chance of loss that is outside the insured's control.
The loss must be definite and measurable. An insurable risk must involve a loss that is definite as to cause, time, place and amount. An insurer must be able to determine how much the benefit will be and when it becomes payable. Since insurance policies are legal contracts, it helps if the conditions are as exact as possible.
The loss must be statistically predictable. This enables insurers to estimate the average frequency and severity of future losses and to set appropriate premium rates. (In life and health insurance, the use of mortality tables and morbidity tables allows the insurer to project losses based on statistics.)
The loss cannot be catastrophic. Insurers typically will not insure risks that will expose them to catastrophic losses. Insurers need to be reasonably certain that the losses will not exceed certain limits. Typically, insurance policies exclude coverage for loss caused by wars or nuclear events because there is no statistical data that allows for the development of rates that would be necessary to cover these events should they occur.
The loss exposure to be insured must involve large homogenous exposure units. There must be a sufficiently large pool to be insured and those in the pool must be grouped into classes with similar risks so the insurer is able to predict losses based upon the law of large numbers. This enables insurers to properly predict the average frequency and severity of future losses and to set appropriate premium rates. (In life insurance, the use of mortality tables allows the insurer to project losses based on statistics.)
The insurance must not be mandatory. An insurer must not be required to issue a policy to each applicant applying for coverage. The insurer must have the ability to require that certain underwriting guidelines be met.