Gyaanleikh

In continuation of-  Insurance Fundamentals So, in order to make insurance work it takes a lot of developments and it's not easy and obvious. The concept of insurance, as we pointed out, goes back to ancient Rome but it doesn't seem to have taken over.  It wasn't managing most risk. It was a narrow scope of risk. If you look at the history of insurance, insurance developed because of specific technical advances like the development of actuarial theory. So it was in the 1600's that they produced the first life tables.  And what they were, it showed the probability of dying at each age. That's what you need to know if you're doing a life insurance policy. What is the probability that the insured will die? And they didn't, nobody had any statistics anywhere in the world on that until the 1600's. So they started doing life insurance but it didn't take off well.  And fire insurance, it wasn't widely accepted. The people mistrusted it and didn't un...

So today we will talk about insurance and it's a very old idea.  In fact, in some sense it even is used by animals, non-human animals. If they share risks, then it's some kind of insurance maybe. So it's very basic. And I think you have some idea of really what insurance is, but it involves an insurance company of some kind or a government insurance. But the policyholders have a contract with the insurance company to protect them against certain well-defined risks and for that they pay a premium, a regular payment to the insurance company for its standing ready to manage those risks.  There is a theory behind insurance and this theory is risk pooling. That, what is a risk for one person is not a risk for society at large if they are independent. Because by the Law of Large Numbers, the number of bad outcomes are fairly predictable.  The insurance company pools all these risks, and by the Law of Large Numbers is not really risky in itself. There's a little mathematical f...