What is the purpose of a risk assessment in commercial insurance?

The purpose of a risk assessment in commercial insurance is to understand and quantify business risks for coverage decisions. This involves systematically identifying potential risks that the business might face, evaluating the likelihood and impact of these risks, and determining the adequacy of the insurance coverage to address them.

By assessing these risks, businesses can make informed decisions about what types of insurance coverage they need, how much coverage is appropriate, and what risk management strategies they might implement to mitigate those risks. This process helps ensure that businesses are adequately protected against potential losses while also allowing insurers to price policies based on the actual risks presented.

Other options miss key aspects of the risk assessment purpose. Increasing policy costs unnecessarily would be counterproductive, as the goal is to provide appropriate coverage at a fair cost. Eliminating all potential claims is unrealistic since risks can never be entirely eradicated; the focus is instead on managing those risks. Lastly, reducing the need for insurance entirely contradicts the principle of risk management, where insurance acts as a vital safety net against unforeseen events, rather than being viewed as something that can be completely eliminated.