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Principles of Risk Management and Insurance, 13th Edition by Michael McNamara, George E. Rejda

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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 ...

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