General Insurance✓ Verified · outline & fact-checked · Sep 2026Difficulty 2/5
A health insurer is asked to cover an entire community against a single event that could disable the community's only hospital and injure most residents at once. Which ideal-insurable-risk characteristic is most clearly violated?
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Answer & full 3-part explanation (select an option above, or peek)
Why A is correct
An ideal insurable risk should be subject to losses that are largely independent, so that a single event does not produce losses for a large proportion of insureds at the same time. A catastrophic, correlated loss of this kind defeats the law of large numbers because actual results will diverge wildly from expected results. Private insurers generally cannot cover such concentrated exposure without reinsurance or a government backstop, which is why the non-catastrophic requirement matters.
Why the other options are wrong
- B) Insurable losses must be fortuitous and accidental, not deliberately caused.
- C) Insureds need not have identical incomes; homogeneity refers to similarity of risk, not finances.
- D) The peril must be possible in the future, not already past, when the policy is issued.
Memory hook
One single event should not sink the whole fleet.