Insurance companies
A) pool risk and enable everyone to share the costs of bad outcomes.
B) never can earn a profit because they accept risk.
C) eliminate the risk of a bad outcome.
D) know who will have a bad outcome.
E) are risk averse.

Question

Quizplus · Accepted Answer

Insurance companies pool risk by collecting premiums from a large group of individuals and using that money to pay out claims to the few who experience a bad outcome. This allows everyone to share the costs of bad outcomes, making it more affordable for individuals who may not be able to bear the financial burden on their own. Insurance companies also take on risk but manage it through actuarial calculations and underwriting standards, allowing them to earn a profit.

Insurance Companies