Characteristics or elements that must be present to insure pure risk.
The loss must be due to chance
--must involve chance of loss that is outside insured's control
the loss must be definite and measurable
--loss that is definite as to cause, time, place, and amount
--insurer must be able to determine how much the benefit will be and when it becomes payable
the loss must be predictable
--occurance can be statistically predicted
--enables insurers to estimate average frequency and severity of future losses and set appropriate premium rates.
the loss cannot be catastrophic
--not insure risks that will expose them to catastrophic losses
--must be limit insurers can be reasonable certain their losses will not exceed.
****Typically losses caused by war and nuclear events are not covered cause there is no data that allows for rates
The loss exposure to be insured must be large.
--There must be a large pool of people and grouped inot classes w/ similar risks--based on law of large #'s
The insurance must not be mandatory
--must not be required to issue a policy to each applicant applying. --they have to make sure that certain underwriting guidelines be met.