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Foundations of Casualty Actuarial Science

(iv) Combining risk retention and insurance - Some
individuals and entities combine risk retention and
insurance. An individual may choose a large
deductible on the health insurance policy, and choose
to insure only the higher medical costs or similarly
an entity may decide to retain a substantial portion
of its workers' compensation.

Q12. Explain the characteristics of an ideally
insurable exposure.

Ans. The characteristics of ideally insurable exposures
are as follows:
(i) The exposure transferred should be the subject of
pure risk.
(ii) There should be large number of independent entities,
all of approximately the same value, with similar
exposures and controlled by people .
(iii) The insured loss should be definite or determinate
in time, place, cause, and amount.
(iv) The expected loss over some reasonable period of
time should be estimable.

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