Arizona Adjuster Practice Exam

Which statement about insurable risk is correct?

1. All risks are insurable

2. Only speculative risks are insurable

3. Only pure risks are insurable, but not all pure risks are insurable

4. Pure risks are uninsurable

The correct answer is: Only pure risks are insurable, but not all pure risks are insurable

The statement that only pure risks are insurable, but not all pure risks are insurable, accurately reflects the nature of insurable risks in the insurance context. Pure risks refer to situations that can result only in a loss or no loss; there is no possibility of gaining from the situation. Examples include natural disasters, theft, or health issues. However, not every pure risk can be insured. For a pure risk to be insurable, certain criteria must be met. These criteria generally include factors like the risk being measurable, the risk being random (not affecting everyone at the same time), the worst-case scenario being well-defined, and the occurrence of the risk being outside the control of the insured. Insurers assess these risks to determine whether they can effectively manage and cover them within their portfolios. Risks that do not meet these criteria may be deemed uninsurable, even if they are considered pure risks. Therefore, the statement correctly acknowledges the limitations within the scope of insurable risks, emphasizing that while pure risks can be insurable, there exist pure risks that cannot or will not be insured due to various underwriting constraints.