Insurance Pooling: How Insurance Companies Make Profit

Activity Description

In this insightful worksheet, students will explore the concept of insurance pooling by analyzing data from a fictitious auto insurance company called Insure-X. Through various calculations and data analysis, students will understand how insurance companies collect premiums, manage claims, and make profits.

Objectives:

• Understand Insurance Pooling: Students will learn how pooling premiums from many customers allows insurance companies to cover claims and manage risks.
• Data Analysis: Students will analyze data related to premiums collected, claim probabilities, and damage costs.
• Profit Calculation: Students will calculate the total premiums collected, total claim costs, and determine the profit or loss for the insurance company.

Activities:

1. Introduction to Insurance Pooling: Students will receive an overview of the concept of insurance pooling and why it is essential for managing risk.
2. Premium Calculation: Students will calculate the total premium collected by Insure-X given the number of customers and the average premium per customer.
3. Claims Analysis: Students will analyze the percentage probability of different claims (e.g., parking lot dent, side mirror damage, flood damage) and the associated costs.
4. Profit Calculation: Students will compare the total premiums collected with the total claim costs to find out the profit or loss for Insure-X.

Students will gain a solid understanding of how insurance pooling helps spread risk among many customers.

This worksheet is a classroom-ready interactive and dynamic worksheet that just needs a few clicks to assign to your classroom. The worksheet is auto-scored, teachers just need to open the real-time console and monitor the student progress.

Learning Objective

Students will be better equipped to comprehend how insurance companies operate, make informed financial decisions related to insurance coverage, and recognize the factors that contribute to an insurance company's profitability.

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