Insurance Explained - How Do Insurance Companies Make Money and How Do They Work

This episode is brought to you by Skillshare. Get 2 months of Skillshare free and learn new skills by using the link in the description. While some of us may think that there's nothing more boring than attending an insurance conference on a wet Tuesday night in Boston, and we may well be right. But if

we look back to see how the industry began, it isn't as dull as it might first appear. From swashbuckling pirates to a ferocious fire that ravaged the world's greatest city, insurance has had a colorful past. But how do those gray suits who sell insurance really make money? And how do the inner workings of

one of the most complicated fiscal models really work? If these questions wet your curiosity, then stay tuned to today's episode of The Infographic Show. Why do insurance companies make money and how do they work? What is insurance? Well, insurance is a financial vehicle that helps spread risk. By taking a risk from an individual and spreading that

risk around the community, the individual is able to go about their personal or business level and spreading that risk from financial ruin. In the simplest terms, let's look at two people. One is named Bob and the other Jim. Bob says to Jim, "I'll give you $10, but if I lose my cell phone, you'll

have to buy me a new one." If Jim agrees, then that's insurance right there. Insurance companies make money because they evaluate the risk and decide whether it is worth the gamble. Jim believes that Bob probably won't lose his phone and he'll therefore be $10 richer. If Jim finds 100 more people who are willing to give him 10 bucks

each to cover their phones, he has $1,000. If one of those 100 people loses their phone and Jim pays $100 as compensation, he still has 900 bucks. The insurance idea has been floating around since the ancient Chinese and the Babylonians spreading their shipping risks. But it wasn't until around the 17th century in London that modern