Question

Identify 3 reasons why exclusions exist on commercial property policy:

a) To increase premium costs for policyholders
b) To limit coverage and reduce insurer risk exposure
c) To encourage policyholders to file more claims
d) To simplify policy language and improve readability

Answer 1

Exclusions in commercial property policies are intended to limit insurer risk, encourage risk management, and exclude uninsurable risks, thereby ensuring insurance affordability and market stability.

Step-by-step explanation:

Exclusions exist in commercial property policies for several reasons. However, the following three options correctly identify the purposes of these exclusions:

• To limit coverage and reduce insurer risk exposure
• To encourage proper risk management practices by policyholders
• To prevent coverage of predictably frequent or inherently uninsurable risks

Exclusions help ensure the viability and affordability of insurance products for consumers. By excluding certain risks, insurers can keep premiums more manageable for the wider policyholder base and also prevent adverse selection, where higher-risk individuals are more likely to purchase insurance. This allows the insurance market to function more effectively and efficiently, safeguarding against potentially expensive claims that could destabilize the company financially.