The market for insurance:
A)is a risk- pooling arrangement.
B)needs risk- lovers to buy policies in order to be viable.
C)exists only of insurance firms are risk- lovers.
D)does not need the law of large numbers to operate.

Question

Quizplus · Accepted Answer

The market for insurance is a risk-pooling arrangement, meaning that many individuals or businesses contribute premiums to a pool to cover losses that may occur to any member of the pool. The law of large numbers is necessary for the market to operate effectively, as it allows insurers to predict the number and magnitude of losses that are likely to occur within a given pool, and charge premiums that are sufficient to cover those losses. Risk-lovers may be more likely to purchase insurance, but they are not necessary for the market to be viable.

The Market for Insurance