Question

A risk-averse person can be made better off by paying an insurer an amount above the expected loss to be relieved of the risk associated with not having insurance. Is this a fair way to assess risk and can you suggest a better way to avert risk and have insurer share risk as well? Research Insurance Risk and how to evaluate expected losses. (200 to 250 words and cite your sources proof your work)

Answer 1

A risk-averse person can benefit from paying an insurer more than the expected loss to be relieved of the risk of not having insurance. An actuarially fair insurance policy is a fairer way to assess risk and have the insurer share the risk based on each individual's specific risk profile.

Step-by-step explanation:

A risk-averse person can be made better off by paying an insurer an amount above the expected loss to be relieved of the risk associated with not having insurance. This is because insurance provides protection against potential financial losses, and by paying a premium to the insurer, the person transfers the risk to the insurer. The premium paid may be higher than the expected loss but provides peace of mind and financial security.

A fairer way to assess risk and avert risk while also having the insurer share the risk is through an actuarially fair insurance policy. Actuarially fair premiums are based on the expected losses of the risk group, so each individual pays an amount that reflects their specific risk profile. This ensures that people with higher risks pay higher premiums and vice versa.