Insurance uses probability and the law of large numbersto determine the cost of insurance premiums it charges clients based on various risk factors. The rate must be sufficient for the company to pay claims in the future, pay its expenses, and make a reasonable profit, but not so much toturnaway customers. The more likely an event will occur for a given client, the more insurance companies will need to collect to pay the anticipated claims.
Insurersmarket their products and services to consumers in different ways. The price companies charge for insurance coverage is subject to government regulation. Insurance companies may not discriminate against applicants or insureds based on a factor that does not directly relate to the chance of a loss occurring.
