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Difficulty: MediumElements of Insurable Risk

An entrepreneur opens a new outdoor amusement park and is consulting with an agent to secure commercial insurance. According to the core elements of an insurable risk, which of the following proposed coverages represent valid, insurable exposures? (Select all that apply)

  1. Protection against financial loss resulting from a sudden lightning strike destroying the park's main ticket officeAnswer
  2. Protection against liability claims arising from a patron accidentally slipping and sustaining an injury on a wet walkwayAnswer
  3. C
    Protection against diminished ticket sales if a new competitor opens a larger amusement park nearby
  4. D
    Protection against the mere presence of overloaded electrical circuits discovered by a municipal safety inspector

Answer

The valid insurable exposures are the protection against financial loss from a lightning strike and the protection against liability claims from a patron slipping.
The correct answers identify pure risks where the potential loss is accidental, definite, measurable, and unintended. Property damage from lightning and liability for visitor injuries perfectly meet these mandatory criteria for insurable exposures.

Step-by-Step Solution

1
Evaluate whether each scenario represents a pure risk or a speculative risk.
Lightning damage and slip-and-fall claims involve only a chance of loss (pure risks). Competitor impact involves a chance of loss or gain (speculative risk).
A fundamental element of an insurable risk is that it must be a pure risk; speculative risks are not insurable.
2
Determine if the scenario describes an actual loss caused by a peril or simply a condition that increases risk.
Lightning and accidental falls are sudden, definite events causing loss. Overloaded circuits are merely dangerous conditions.
Insurance is designed to compensate for definite, measurable financial losses caused by covered perils, not to pay claims based on the discovery of a hazard.

Key Concept

An ideally insurable risk must be a pure risk (involving no chance of gain) that is accidental, definite, measurable, and represents an actual loss caused by a peril rather than just the presence of a hazard.
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Elements of Insurable Risk

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