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Insurance: Difference between revisions
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In a group of 1000 people, each has a 1% chance of a £100,000 loss in a ten year period. | In a group of 1000 people, each has a 1% chance of a £100,000 loss in a ten year period. | ||
This means | This means the likelihood is 10 people will each incur that whole loss, and 990 will suffer no loss. | ||
This means that over the group, the total expected loss will be | This means that over the group, over that period, the total [[expected loss]] will be £1,000,000. | ||
That cost, spread over the 100 people and ten years, works out at £100 per year each | That cost, spread over the 100 people and ten years, works out at £100 per year each (£1,000,000 divided by 1000 divided by 10). | ||
Factor in admin costs, the risk that the damage might be more than that and, of course, a healthy profit margin and call the insurance premium £200 per annum each. | |||
Who would not pay £200 to be immunised against a £100,000 risk? | Who would not pay £200 to be immunised against a £100,000 risk? | ||