South Dakota Crop Insurance Practice Exam

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Prepare for the South Dakota Crop Insurance Exam. Study smart with flashcards and multiple choice questions; all questions feature hints and detailed explanations. Ace your exam effortlessly!

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For a risk to be insurable, which of the following characteristics must it not have?

Measurable frequency
Catastrophic potential
Predictable outcomes
Large number of exposures

The correct answer is: Catastrophic potential

For a risk to be insurable, it is essential that it does not have catastrophic potential. This characteristic can make it extremely difficult for insurance companies to manage and can lead to significant financial losses if many policyholders experience the loss simultaneously. When a risk has catastrophic potential, it can result in claims that exceed the available resources for the insurer, making it unsustainable. In contrast, having measurable frequency, predictable outcomes, and a large number of exposures are all desirable characteristics for insurability. These elements allow insurers to assess risk, set premiums accurately, and spread risk among a larger pool of policyholders, which aids in financial stability. A risk that can be predicted and occurs frequently can be calculated and managed more effectively, making it a viable candidate for insurance.