Canadian Accredited Insurance Broker (CAIB) Two Practice Exam

What is one reason insurers typically exclude coverage for losses due to war or nuclear energy hazards?

1. These losses are considered unavoidable

2. These items are more difficult to insure

3. These losses are considered uninsurable

4. These risks have low probability of occurrence

The correct answer is: These losses are considered uninsurable

The exclusion of coverage for losses related to war or nuclear energy hazards primarily centers around the concept of uninsurability. Insurers assess risks based on their ability to quantify and manage potential losses, and losses resulting from war or nuclear events are often seen as beyond the scope of regular insurance operations. The reason is that these events can lead to widespread and catastrophic damage that would result in financial losses that are not only massive but also unpredictable in scale and frequency. Additionally, the nature of such risks makes it almost impossible to calculate premiums in a manner that would be sustainable for the insurer. This leads to the conclusion that these types of losses cannot be adequately managed through traditional insurance mechanisms, hence the classification of them as uninsurable. Insurers prioritize stability and risk management in their offerings, which is why these exclusions are standardized in many insurance policies.