Alberta General Insurance Level 1 Practice Exam

What must insurers do to survive and make a profit?

1. Offer coverage only to high-risk individuals

2. Ensure the insureds incur more losses than premiums paid

3. Seek insureds likely to incur less losses than premiums paid

4. Invest all capital into a single venture

The correct answer is: Seek insureds likely to incur less losses than premiums paid

Insurers must seek insureds who are likely to incur less losses than premiums paid in order to survive and make a profit. Option A is incorrect because offering coverage only to high-risk individuals would increase the amount of claims and lead to higher losses for the insurer. Option B is incorrect because if the insureds incur more losses than premiums paid, the insurer would not make a profit. Option D is incorrect because investing all capital into a single venture is a high-risk strategy and could lead to financial losses for the insurer. Therefore, option C is the best choice as it aligns with the goal of insurers to minimize losses and generate profits.