What is the primary reason for risk selection in life insurance companies?

The primary reason for risk selection in life insurance companies revolves around the need to gather and test mortality statistics. This process is essential for insurers to determine the likelihood of policyholders claiming benefits due to death or disability. By assessing the risk associated with potential clients, the insurance company can effectively predict future claims and set premiums that are commensurate with the level of risk they are taking on.

As individuals apply for insurance, their personal health, lifestyle, and family medical history are evaluated to gauge their risk profile. This evaluation allows companies to build a comprehensive database of mortality statistics, which informs underwriting decisions. Over time, these statistics help insurers establish pricing models, improve financial sustainability, and ensure they have enough funds to cover claims while remaining profitable.

In contrast, while the other choices may hold some relevance in the broader context of insurance management—such as customer satisfaction or minimizing costs—they do not directly address the fundamental need for accurate risk assessment and mortality analysis, which is at the heart of the risk selection process. Thus, the gathering and testing of mortality statistics is pivotal, making this the correct answer.