General Insurance✓ Verified · outline & fact-checked · Sep 2026Difficulty 2/5
A disability insurer prices its policies based on risk. Which of the following best describes what the insurer is actually measuring?
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Answer & full 3-part explanation (select an option above, or peek)
Why B is correct
Risk is the chance or probability of loss. When an insurer prices disability coverage, it measures the probability that insureds will suffer a covered disability, using morbidity statistics and the law of large numbers. This forward-looking probability is what premium calculations are based on. Already-paid claims are past losses, while sales volume and premium collections are business metrics; none of these is risk in the technical sense used by the insurance industry, so they cannot be the basis for predicting future claim costs.
Why the other options are wrong
- A) Claims already paid are actual losses from the past; they reflect history, not the forward-looking chance of loss that risk describes.
- C) Policies sold is a marketing and production statistic and has nothing to do with the probability of a covered disability.
- D) Premium collections reflect pricing and policy persistency, not the chance that a covered disability will occur.
Memory hook
Risk looks forward into the future; claims look backward into the past.