AD Banker Comprehensive Practice Exam

To make insurance more affordable, insurers will typically:

1. Reserve the risk

2. Retain the risk

3. Deny the risk

4. Reinsure the risk

The correct answer is: Reinsure the risk

When insurers seek to make insurance more affordable, they often use reinsurance as a strategy. Reinsuring the risk involves transferring a portion of the risk to another insurance company, known as a reinsurer. This practice helps primary insurers manage their risk exposure and can lead to lower premiums for policyholders. By spreading the potential losses across multiple companies, the primary insurer can mitigate the financial impact of claims. This makes it easier for them to offer more competitive rates to consumers, thus enhancing the affordability of insurance. Reinsurance acts as a safety net that allows insurance companies to take on larger risks than they could handle alone while maintaining solvency and stability. Other options involve different risk management strategies. Reserving the risk means setting aside funds to cover anticipated claims, which doesn't directly lower rates. Retaining the risk refers to keeping the risk without external support, potentially leading to higher costs. Denying the risk involves refusing coverage, which obviously doesn't make insurance more affordable. Therefore, reinsurance is the most effective way for insurers to manage risk and lower costs for consumers.