My cousin and I are going to try to start a business so we needed insurance. The insurance is a 160 something dollars a month and covers 2 1,000,000 dollars accidents. Where do they make there money?
In: Economics
If you squint hard enough, insurance companies are basically casinos. You’re making a $160 bet every month, and the prize if you win is up to $1M.
As with casinos, they make their money by setting the odds for their “games” such that they win on average across all players. If they have 600 people paying $160/mo, that’s just shy of $100k/month total. If they average one $1M payout per year, they win $200k. Setting the odds is pretty damn complex work, and they employ [actuaries](https://en.m.wikipedia.org/wiki/Actuary) to manage those numbers.
Obviously, the difference between gambling and insurance is that you don’t really want to win that bet, because it’s tied to a bad thing happening. Instead of being risky behaviour where you’re burning money chasing a big win, you’re paying to control a risk and keep it from bankrupting you.
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