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1.4.4 Elements of Insurable Risk

One of the criteria for an insurable risk is that it NOT be catastrophic. A principle of insurance holds that only a small portion of a given group will experience loss at any one time. Risks that would adversely affect large numbers of people or large amounts of property - wars or floods, for example - are typically not insurable.

In order for a pure risk to be insurable, it must meet the following criteria.

*Adverse selection refers to the tendency for those individuals who present less favorable insurance risks (i.e., people in poor health) to seek or continue insurance to a greater extent than other risks. The systematic selection of loss exposures is prohibited due to the rules of adverse selection.

To be insurable, a risk must involve the chance of loss that is unexpected and outside the insured's control.


Can you give me an example of adverse selection?

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