Which is NOT a characteristic of an ideally insurable risk?

• A. Loss must be due to chance
• B. Definite and measurable
• C. Probability of loss can be ignored
• D. Not catastrophic

Answer: (C)

The idea being tested is that an ideally insurable risk relies on having a calculable probability of loss so the insurer can price and pool risk. The statement that the probability of loss can be ignored clashes with how insurance works—premium setting and loss funding depend on estimating how often losses occur and how large they will be. If probability could be ignored, you couldn’t reliably forecast expected losses or determine an appropriate premium, making the risk uninsurable in practice.

The other characteristics fit the concept: losses must be due to chance, meaning they’re accidental and not the insured’s intentional acts; the loss amount and timing should be definite and measurable so claims can be settled accurately; and the risk should not be catastrophic to the insurer, since widespread, severe losses in a single event threaten the insurer’s solvency and the viability of pooling.