Why might an insurance policy include exclusions?

• A. To minimize policy complexity
• B. To reduce losses for the insurer
• C. To create more policies
• D. To increase customer satisfaction

Answer: (B)

An insurance policy includes exclusions primarily to reduce losses for the insurer. Exclusions specify what is not covered by the policy, thereby limiting the insurer's liability and helping to manage risk. By clearly defining the boundaries of coverage, insurers can protect themselves from claims that fall outside the intended scope of the policy. This, in turn, allows insurers to offer more affordable premiums while maintaining financial stability.

For instance, common exclusions might include damage caused by natural disasters or activities considered high-risk. Without these exclusions, insurers could face higher costs due to an increased number of claims, which could ultimately affect their ability to provide coverage or maintain their business.

The other options, while they may touch on aspects of insurance policies, do not directly address the fundamental purpose of exclusions. Policy complexity is often a concern but is not the main reason for exclusions. Creating more policies could be a business strategy but isn’t directly related to the purpose of exclusions. Customer satisfaction is important for insurers, but exclusions are primarily a risk management tool rather than a mechanism to enhance customer experience.