Other Than Life (OTL) Practice Exam

What includes organizing the distribution of risk among insurers?

1. Retrospective rating

2. Underwriting

3. Risk pooling

4. Premium assessment

The correct answer is: Risk pooling

The concept of organizing the distribution of risk among insurers refers to how risks are collectively managed and shared within an insurance framework. Risk pooling is the foundational principle of insurance where multiple policyholders combine their risks to reduce the overall impact of loss. This collective approach allows for more predictable outcomes and ensures that no single insurer bears the brunt of a catastrophic event on their own. In risk pooling, the premiums from a larger group enable insurers to cover the potential losses for individuals within that group. This model is effective because it levels out the variances in risk by spreading it across many participants, thus allowing insurers to better manage financial stability and provide coverage efficiently. While other options may relate to insurance practices, they do not encapsulate the idea of distributing risk among insurers in the same broad and collective manner as risk pooling does. For instance, underwriting specifically involves evaluating and determining the risks of individual applicants rather than managing risk distribution among multiple insurers.