Alberta General Insurance Level 1 Practice Exam

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How do insurers spread risk?

  1. By insuring only in one location

  2. By insuring a diverse range of risks

  3. By limiting the number of policies

  4. By focusing on high-risk policies only

The correct answer is: By insuring a diverse range of risks

Insurers spread risk by insuring a diverse range of risks, rather than only insuring in one location (A), limiting the number of policies (C), or focusing on high-risk policies only (D). By having a variety of policies within their portfolio, insurers are able to spread risk across multiple different types of risks. This helps to minimize the impact of any one particular risk and ultimately leads to a more stable and sustainable business model. Additionally, by not limiting the number of policies or only focusing on high-risk policies, insurers are able to maintain a steady flow of premiums and diversify their revenue streams. This ultimately allows them to better manage their exposure to risk and remain financially secure in the face of unexpected events.

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