The profitability of insurance exists because
A) people have identical attitudes toward risk
B) big insurance companies always charge extremely high rates
C) people have different attitudes toward risk

Question

Quizplus · Accepted Answer

The profitability of insurance exists because people have different attitudes toward risk. Some people are willing to pay a premium to transfer risk while others are willing to take on more risk for a lower premium, which allows insurance companies to make a profit by balancing the needs of different customers. Option A is incorrect because people do not have identical attitudes toward risk. Option B is incorrect because big insurance companies do not always charge extremely high rates; rates are determined based on risk assessment and pricing strategies.

The Profitability of Insurance Exists Because