Final answer:
A definable, measurable, and time-limited loss exposure is necessary for an insurer to consider it definite. The average person's payments into insurance encompass claims, operational costs, and profits, balancing risk pools and actuarial predictions in the context of imperfect information.
Step-by-step explanation:
An insurer considers a loss exposure to be definite when it has three components: the loss must be definable, measurable, and time-limited. First, 'definable' means that the loss exposure must have a specific cause and effect that can be clearly identified. Second, 'measurable' refers to the ability to quantify the loss in monetary terms. Lastly, 'time-limited' means that there must be a clear time frame during which the loss exposure can occur.
The average person's payments into insurance must cover the average person's claims, the costs of running the company, and leave room for the firm's profits. This reflects the fundamental law of insurance, which is underpinned by pooling risk groups together and estimating potential losses using actuarial science amidst the challenge of imperfect information about the future.