General Insurance✓ Verified · outline & fact-checked · Sep 2026Difficulty 1/5
An insurance company is reviewing whether a proposed health insurance risk is insurable. Which characteristic of the proposed risk would make it MOST difficult to insure?
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Answer & full 3-part explanation (select an option above, or peek)
Why C is correct
Insurable risks require a large, predictable pool with losses that are fortuitous — uncertain for each individual. An applicant who buys coverage because of a known existing condition introduces adverse selection: the pool is no longer a random sample of the population, and premiums based on average risk will be inadequate. Adverse selection is exactly why insurers underwrite health applicants at all.
Why the other options are wrong
- A) Measurability based on actuarial data is a requirement of insurability, not a difficulty — it is what makes pricing possible.
- B) Predictable group frequency with individual uncertainty is the ideal situation for insurance; it is the foundation of the law of large numbers.
- D) Definite, measurable losses are a requirement of insurable risks — insurers must be able to determine the value of the loss to price the contract.
Memory hook
Adverse selection = sick people buy first. Insurance works only when the pool looks like a lottery, not a line of the already-sick.