The existence of insurance markets indicates how risk aversion creates a demand to remove risk.

Question

Quizplus · Accepted Answer

Insurance markets exist because individuals and businesses are generally risk-averse; they prefer to pay a premium to transfer the risk of financial losses to an insurance company rather than facing the uncertainty of these losses on their own. This demand for risk mitigation is what drives the existence and growth of insurance markets.

The Existence of Insurance Markets Indicates How Risk Aversion Creates