Canadian Accredited Insurance Broker (CAIB) One Practice Exam

What is the purpose of risk assessment in insurance?

1. To increase policy premiums

2. To identify and evaluate risks

3. To collect claims more efficiently

4. To determine the availability of insurance

The correct answer is: To identify and evaluate risks

The purpose of risk assessment in insurance is to identify and evaluate risks. This process involves systematically examining potential hazards or uncertainties that could affect an individual or organization's financial wellbeing. By assessing risks, insurers can gain insights into the likelihood and potential impact of various events, such as natural disasters, accidents, or liability claims. This evaluation plays a crucial role in determining how to manage those risks effectively, which can include deciding on appropriate coverage options, setting policy terms, and calculating premiums. Through comprehensive risk assessment, insurers can understand the risk profile of their clients and tailor insurance solutions accordingly, fostering a more responsible and informed approach to underwriting and claims management. In terms of the other choices, increasing policy premiums typically results from the insights gathered through risk assessment but is not the primary aim. Collecting claims more efficiently is a result of effective claims management processes rather than a direct purpose of risk assessment. Determining the availability of insurance is influenced by risk factors but is a separate consideration that comes after evaluating the risks.