Which of the following is an element of insurable risk?

To understand why premiums must be calculable based on prior loss statistics is an element of insurable risk, it is essential to consider the fundamental principles that underpin insurance as a financial product. Insurable risk refers to the characteristics that make a risk acceptable for an insurer to provide coverage. One of these key elements is the ability to use historical data to determine the likelihood and potential cost of future claims.

When premiums are calculable based on prior loss statistics, it allows insurers to estimate the expected losses for a specific group of insureds. This enables the insurer to set premiums that are both competitive and sufficient to cover the anticipated losses, administrative costs, and provide a profit margin. The calculability of premiums is central to the operational viability of an insurance company, ensuring that it remains financially stable while providing coverage to policyholders.

In contrast, the other options do not align with the necessary characteristics of insurable risk as effectively. While losses being unpredictable may describe risk in a broader sense, insurable risks often require a degree of predictability to set premiums and manage exposure. The health status of insureds and the frequency of claims are considerations in underwriting and risk selection but do not directly define the essence of what makes a risk insurable from a premium calculation perspective.