2015•bepress Legal RepositoryOpen access

Risk Aversion, Insurance Insurance, and the Limits of Regulation

Kenneth S. Abraham

Abstract

The heart of insurance-what enables insurance to function-is risk aversion.Insurance transactions occur because policyholders prefer the certainty of suffering a small loss-the amount of an insurance premium-to the risk of suffering a larger loss. 1 They are therefore willing to pay premiums that exceed the expected value of the individual risks that they pose.Insurers undertake to cover these risks and,

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Key concepts: Insurance policy, Auto insurance risk selection, Actuarial science, Casualty insurance, Key person insurance, General insurance, Insurance law, Group insurance