A class of
professional experts in finance and probability, called actuaries, work for
insurance companies to attempt to predict the probability and severity of risk.
They also take lapse rates and interest rates or other expected rates of return
on investment assets into account, with the goal of setting acceptable
premiums. The premium is the cost of pooling one's own risk with that of others
via an insurance company and includes the insured's share of expected claims
costs, administrative expenses, sales and marketing expenses, and a profit for
the insurer. If a premium payer is affected by a covered risk, the insurance
company, and not the insured, takes the hit. If claims are higher than
expected, however, the insurance company may have to raise rates on policy
holders across the board.
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