Nebraskas NeatO Grocery Store is a chain of 100 large grocer

Nebraska’s Neat-O Grocery Store is a chain of 100 large grocery stores. Annually NNG receives 500 complaints regarding dents that customers receive on their vehicles from grocery carts in the parking lot. The grocery carts are used carelessly by customers who allow them to roll into vehicles in the parking lot, causing scratches and dents. The average damage for each loss is $75. Do these losses exhibit the characteristics of an ideally insurable loss exposure? Explain your answer.

Solution

Characteristics of an ideally insurable loss exposure are as follows:

Pure risk: Involves pure risk, no chance of gain (speculative risk)

Fortuitous losses: A loss of fortune, uncontrollable.

Definite and measurable,

Large number of similar exposure units,

Independent and not catastrophic, and

Affordable.

In the given case all these characteristics are fulfilled and hence is is an ideally insurable loss exposure.

Pure risk entails a chance of loss or no loss, but no chance of gain. Conversely, a speculative risk presents the possibility of loss, no loss, or gain.

An ideally insurable loss exposure have to be one of a large number of similar exposure units?

A loss exposure that is one of a large number of similar exposure u nits allows an insurer to spread the risk of loss over its entire pool of similar insureds and thereby maintain manageable premium levels.

Loss exposure involving only small losses and loss exposures involving a high probabiliy of loss are generally considered uninsurable.

Loss exposures involving only small losses and loss exposures involving a high probability of loss are generally considered uninsurable because they are not economically feasible to insure. The expense of providing the insurance probaly exceeds the amount of potential losses.