Principles of Risk Management and Insurance, 13th Edition

Two Applications: The Risks of Fire and Unemployment

You will understand more clearly the requirements of an insurable risk if you can apply these requirements to a specific risk. For example, consider the risk of fire to a private dwelling. This risk can be privately insured because the requirements of an insurable risk are generally fulfilled (see Exhibit 2.1).

Exhibit 2.1Fire as an Insurable Risk

Requirements	Does the risk of fire satisfy the requirements?
1. Large number of exposure units	Yes. Numerous exposure units are present.
2. Accidental and unintentional loss	Yes. With the exception of arson, most fire losses are accidental and unintentional.
3. Determinable and measurable loss	Yes. If there is disagreement over the amount ...