What must an insurer exclude from coverage to maintain adequate premiums?

To maintain adequate premiums, an insurer must exclude coverage for large-scale disasters. This is because such events typically result in extremely high costs due to the sheer number of claims and the significant damages that can occur. When an insurer covers these types of catastrophic risks without exclusions, it can lead to devastating financial losses that outstrip the collected premiums, making it unsustainable for the insurer to remain in business.

By excluding coverage for large-scale disasters, insurers can better manage their risk exposure and set premiums at a level that is both competitive and sufficient to cover their potential claims. This allows them to operate effectively while ensuring policyholders still receive coverage for a range of other risks that are more predictable and manageable.

Beneficial health programs, routine maintenance costs, and common household accidents do not carry the same level of financial risk for insurers as large-scale disasters. These can generally be anticipated or mitigated through careful underwriting and risk management practices, allowing insurers to maintain a balanced and sustainable risk portfolio.