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Difficulty: EasyElements of Insurable Risk

Match each insurance scenario with the core element of an insurable risk that it best illustrates or violates.

  • A person tries to insure a family scrapbook; it has massive sentimental value but no appraised financial worth in the market.Definite and measurable
  • An insurer refuses to provide property coverage for damages resulting from a global nuclear war.Not catastrophic
  • A business owner intentionally sets fire to their own warehouse in order to collect an insurance payout.Accidental and due to chance
  • An actuary uses years of collected data from millions of drivers to accurately forecast auto accident rates for the upcoming year.Statistically predictable

Answer

The sentimental scrapbook violates 'Definite and measurable'. Nuclear war violates 'Not catastrophic'. Intentional arson violates 'Accidental and due to chance'. Using data to forecast rates illustrates 'Statistically predictable'.
Each scenario directly maps to one of the fundamental requirements for a risk to be privately insurable: it must be accidental, financially measurable, statistically predictable, and not catastrophic in nature.

Step-by-Step Solution

1
Analyze the scrapbook scenario.
Matches with 'Definite and measurable'.
Sentimental value cannot be quantified in terms of financial loss.
2
Analyze the nuclear war scenario.
Matches with 'Not catastrophic'.
Nuclear war causes widespread, simultaneous damage that insurance companies cannot absorb.
3
Analyze the intentional arson scenario.
Matches with 'Accidental and due to chance'.
Insurance only pays for fortuitous events, not losses intentionally caused by the insured.
4
Analyze the actuary forecasting scenario.
Matches with 'Statistically predictable'.
Relying on past data to project future losses allows the insurer to predict frequency and severity.

Key Concept

Elements of Insurable Risk
Estimated Time:1m 30s
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Topics

Elements of Insurable Risk

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