• The loss must be determined and measurable. This implies that the boss should be defined as to cause, time, place and amount. The purpose of these requirements is to enable the insurer to determine if the loss is covered under the policy and how much should be paid.
• The loss must be accidental and unintentional. The loos must be out of the insured control. The reason behind this requirement is that if intentional losses were paid moral hazards would be substantially increased and premiums would rise as a results.
• The chance of loss must be calculated. The insurer should be able to calculate with the average frequency and average severity of future loss with some accuracy. This is to make sure that proper premiums can be charged sufficient to pay all claims expenses and bear a profit to the insurer during the policy period.
• The loss should not be catastrophic. This means that a large proportion of exposure units should not incur loss the same time. If most of the exposure units were to suffer losses at the same time, the pooling techniques would breakdown and become unworkable.
• There must be a large number of exposure units. For the insurer to predict loss, there should be a large number of similar exposure units but should not necessarily identified.
• The premiums should be economically feasible. The insurer must be able to pay the premium further for insurance to be attractive the premiums paid must be substantially less than face value or amount of the policy.
skilled writter answered the question on May 1, 2018 at 16:12
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