Which statement about insurable risk is accurate?

• A. It must be certain to occur to be insured.
• B. It can be any possible loss without measurement.
• C. It is probabilistic, measurable, and financially feasible.
• D. It is only related to natural disasters.

Answer: (C)

Insurable risk relies on uncertainty that can be quantified. The event must be probabilistic—there’s a real chance it may or may not occur—so the insurer can estimate how often it will happen and how large losses will be. It also has to be measurable, meaning we can determine both the probability and the expected loss, which allows pricing that reflects risk. And it must be financially feasible for the insurer to offer coverage, with premiums that cover expected losses plus expenses and a profit. If the event were certain to occur, there’d be no risk to insure and no fair premium could be charged. If the risk can’t be measured, pricing isn’t possible and the contract wouldn’t be sustainable. And insurable risk isn’t limited to natural disasters; health issues, auto accidents, liability, and many other perils can be insured when they meet these criteria.