Other Than Life (OTL) Practice Exam

What method is used for insuring very large risks?

1. Extension policies

2. Subscription policies

3. Prescription policies

4. Manuscript policies

The correct answer is: Subscription policies

The method used for insuring very large risks is subscription policies. This approach involves multiple insurers participating in covering a single risk. Each insurer provides a portion of the overall coverage, thus sharing the financial exposure associated with the risk. This method is particularly beneficial for risks that are too large for a single insurer to shoulder comfortably, such as large commercial properties, major infrastructure projects, or sizable liability exposures. By using subscription policies, insurers can diversify their risk portfolios and minimize the impact of any single claim on their financial stability. This collaborative approach allows them to provide coverage for significant risks that might otherwise go uninsured, as individual insurers may have limits on how much risk they can underwrite. The other options, like extension, prescription, and manuscript policies, do not specifically relate to the practice of insuring large risks in the same manner. Extension policies typically refer to added coverages or endorsements to existing policies, prescription policies do not pertain to insurance risk management, and manuscript policies are customized insurance agreements but do not focus on spreading large risks among multiple insurers.