Question

reason why we do not transfer all risks by using insurance.​

Answer 1

Answer:

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Answer 2

All risks are not transferred as they have variable severity.

• Since certain risks arise regularly but have a low severity and no potential for a high severity, they are not transferred through insurance.

• Spending considerable amount on insurance premiums to prevent a risk worth an excessive amount is not cost-effective.

• This is because the insurer would typically need a reward high enough to make a profit, which could be greater than the estimated effect of the loss for a given time span.

• These risks would be prohibitively costly to cover since the insurer's minimum premium would be excessively high.