Question 8

Risks are generally NOT insurable if the loss is expected.

Risks become non-insurable when the potential for loss is predictable and expected. Insurers typically do not cover risks that are anticipated, as they cannot effectively manage or distribute the financial impact of such losses.

A) there are many individuals who may also experience a similar loss

This option is incorrect because having many individuals exposed to a similar risk can actually make it more insurable. Insurers can spread the risk across a larger pool, which helps to manage potential losses.

B) the policyholder has a policy from another insurer

This option does not relate to the insurability of a risk. Having multiple policies does not inherently make a risk uninsurable; rather, it may lead to complexity in claims but does not affect the nature of the risk itself.

C) deductibles would be required

The presence of deductibles does not determine whether a risk is insurable. Deductibles are common in insurance policies and serve to reduce the frequency of small claims, but they do not indicate the insurability of the underlying risk.

D) the loss is expected

This option is correct because when a loss is expected, it undermines the fundamental principles of insurance. Insurers rely on uncertainty and randomness for risk pooling, so predictable losses do not fit within the insurance model.

Conclusion

The correct answer is that risks are generally not insurable if the loss is expected, as this predictability eliminates the randomness necessary for effective risk management. All other options fail to address the core principle of insurability, which hinges on the uncertainty of loss rather than the characteristics of policyholders or policy terms.