insurability

Insurability is the degree to which a risk can be transferred through insurance at an affordable premium. It depends on the predictability and measurability of losses, the ability to pool a sufficiently large and similar set of risks, and the availability of data to price that risk. A risk is generally more insurable when losses are somewhat random, the frequency and severity are predictable, exposure units are homogeneous, and there is a mechanism to mitigate moral hazard and adverse selection.

Risks that are rare, catastrophic, highly correlated, or illegal tend to be less insurable or require higher premiums, tailored exclusions, or government involvement. Insurability also relies on the quality and quantity of historical data, the stability of the risk environment, and the administrative feasibility of underwriting and claims handling. Markets may differ in insurability due to regulatory frameworks, legal culture, and availability of reinsurers.

Underwriting and pricing are central to determining insurability in practice. Underwriters assess an applicant’s exposure, past losses, and factors that influence expected losses, using actuarial data and models to estimate expected losses and set premiums. Pricing approaches can include experience rating, community rating, and risk classification, while reinsurance helps spread volatility and extend capacity. Policy terms, deductibles, limits, and exclusions also shape the observed insurability of a risk.

Common insurable risk areas include life, health, property, and liability, though the degree of insurability varies by line and jurisdiction. Some risks are effectively uninsurable in ordinary markets, prompting government programs or mandatory coverage. In developing markets and microinsurance, products are designed to fit limited data and lower administrative costs to broaden insurability.