PSI Insurance Practice Exam 2025 – Comprehensive Test Preparation

The correct answer identifies one of the key elements of insurable risk, which is that losses must be predictable and calculable. For an insurance company to effectively manage risk, it needs to estimate potential losses based on historical data and probability. This means that the insurer must have a clear understanding of the likelihood of a loss occurring and the potential financial impact of that loss. Predictability allows for the establishment of premiums and reserves that can adequately cover the expected claims.

The other options do not align with the principles of insurable risk. For instance, not all risks are insurable, as some may be too high-risk or speculative in nature. Insurance also does not cover every possible loss, instead focusing on specific types of loss that fall within the agreed terms of a policy. Additionally, risks cannot always be completely avoided; they can only be managed and mitigated, which is why insurance exists to provide a safety net against those manageable risks.