ABSTRACT
This chapter examines two broad conditions for a risk to be insurable. Condition 1 requires the insurer to set a pure premium by quantifying the frequency and magnitude of loss associated with specific events associated with the risk. Condition 2 specifies a set of factors, such as adverse selection, moral hazard, and degree of correlated risk, that need to be taken into account when the insurer determines what premium and type of coverage (maximum limits, nature of deductible) it wants to offer. Finally, a risk is not insurable unless there is sufficient demand for the product at some price to cover the upfront costs of developing the product and the expenses associated with marketing policies.
