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The Jazz:
Thanks for sharing your knowledge. Here's where I don't understand insurance. I can understand insurance for things like autos. If you have a million policy holders, you can predict that within a year a certain percentage will have accidents, and those claims will average $XXXX. You can base your premiums on that caluculation and add some for expenses and profit.
But what about natural disasters like earthquakes? These events are difficult to predict. The "Big One" probably won't happen in a given year, or even a given decade. But when it does happen, a huge number of people will have claims. So when it doesn't happen, the insurance company is sitting on a huge pile of cash, but you can't pay it as dividends or refund it because the "Big One" can happen at any time. And when the "Big One" does happen, and there are thousands or hundreds of thousands of claims, will there be enough cash to pay them all?
How does the industry resolve this?
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