CMFAS BCP Risks & Insurance question: considered difficult to insure privately

CMFAS BCPRisks & Insurance

Many fundamental risks are considered difficult to insure privately mainly because:

A They can affect vast numbers at once, undermining the insurer's ability to pool and predict
B They usually involve dishonesty or deliberate acts by the insured
C They always carry the possibility of a financial gain for the insured, like speculative risks
D They are never accidental, so the loss is not fortuitous

Show the answer and explanation

Answer: A. They can affect vast numbers at once, undermining the insurer's ability to pool and predict

Because a fundamental risk (e.g. a catastrophe) can strike a huge number of exposures at once, the losses are correlated rather than independent. This defeats pooling and the law of large numbers, so such risks are often handled by government or special pools.

Common mistake

This is about correlated catastrophic loss, not dishonesty or the possibility of gain.

Practise more BCP Risks & Insurance questions

Exam-style questions with worked answers, then full timed mocks. Free to start.

Start practising →

Study note: Risks & Insurance CMFAS BCPpractice questions & mock exams

CMFAS BCP Risks & Insurance question: considered difficult to insure privately

Answer: A. They can affect vast numbers at once, undermining the insurer's ability to pool and predict

Common mistake

Related CMFAS BCP questions

CMFAS BCP Risks & Insurance question: considered difficult to insure privately

Answer: A. They can affect vast numbers at once, undermining the insurer's ability to pool and predict

Common mistake

Related CMFAS BCP questions