What is the purpose of risk evaluation in insurance?

The purpose of risk evaluation in insurance is to assess and determine the likelihood of a claim occurring. This process involves analyzing various factors related to the applicant or the insured item, such as historical data, the nature of the risk, and the potential for loss. By understanding the likelihood of a claim, insurers can make informed decisions about underwriting, setting premiums, and managing risks more effectively.

This evaluation process helps insurers identify and categorize risks, allowing them to determine appropriate coverage options and premium pricing for different policyholders. A thorough risk evaluation ultimately leads to more sustainable and stable insurance practices by balancing the potential for losses against the premiums collected.

Other options, while they may seem relevant, do not capture the primary focus of risk evaluation. Denying all insurance applications is not practical or reflective of the insurance principle of providing coverage; lowering costs can be a consequence of effective risk evaluation, but it is not the primary purpose; and calculating future income relates more to financial forecasting rather than the specific evaluation of risk associated with claims.