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Old 01-06-2019, 09:39 AM   #15
whswhs
 
Join Date: Jun 2005
Location: Lawrence, KS
Default Re: Insurance and Shipping?

Quote:
Originally Posted by swordtart View Post
With all insurance, the fundamental principle is that it pays out some sum of mSo if a given risk is 10% likely to occur over say a 25 year period and will result in a pay out of 10,000 then they need to take in more than 1000 in the 25 years as premiums. This assumes that the insured is contracted to pay premiums over 25 years, if they get to cancel the policy after a pay out then the premiums may need to be higher to counter that risk - basically the insurance company is insuring itself against an early cancellation.
I don't think that's needed in the case you propose.

You specify 10% chance in a 25-year period. That's a 0.4% chance in a single year. So out of 250 policyholders, one will need a payout of $10,000 that year, in the long-run average. To cover it, the company needs to take in $10,000, and dividing that among 250 policyholders comes to $40. As long as the company has a large enough pool of policyholders to spread the risks over in a given year (if it has only 250, there's a risk of having two payouts and going broke!), it doesn't matter if they're the same policyholders from year to year.
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