What is the purpose of profitable distribution of exposures?
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A. Protecting the insurer against adverse selection. B. Helping the insurer select only the ideally insurable risks. C. Preventing the insurer from being estopped. D. Helping the insurer determine payable benefits.
The profitable distribution of exposure serves as a checkmate. It serves as an intermediary among the standard, preferred and poor risks. With its even distribution and classification of risks in business, it places the poor risks to be at par with the preferred risks.
Thereby, the standard risk is placed at the middle to limit the effects of these risks. The main reason why these distributions are implemented is for the protection of the insurer from inordinate selections. In this way, the insurer is protected from making selections that will breed more risks than required.
A profitable distribution of exposures exists when poor risks are balanced with preferred risks, with the standard risks in the middle. The purpose behind distributing risks in this manner is to protect the insurer from adverse selection.