CMFAS BCP Risks & Insurance question: requisite of an insurable risk

CMFAS BCPRisks & Insurance

An insurer declines to cover a risk of loss that, if it occurred, could be so enormous and widespread that no affordable premium could fund it. Which requisite of an insurable risk is chiefly in question?

A The loss must be fortuitous and accidental from the insured's point of view
B The insured must have an insurable interest in the subject
C The loss must be measurable in money terms
D The premium must be economically viable, and the loss not catastrophic

Show the answer and explanation

Answer: D. The premium must be economically viable, and the loss not catastrophic

For a risk to be insurable, the potential loss must not be so catastrophic that it cannot be covered at an economically viable premium. A loss of unlimited or catastrophic scale defeats the pooling mechanism and cannot be priced affordably.

Common mistake

Fortuity and insurable interest are not the issue here; the issue is economic/catastrophic viability.

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CMFAS BCP Risks & Insurance question: requisite of an insurable risk

Answer: D. The premium must be economically viable, and the loss not catastrophic

Common mistake

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CMFAS BCP Risks & Insurance question: requisite of an insurable risk

Answer: D. The premium must be economically viable, and the loss not catastrophic

Common mistake

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