re: Does insurance violate the basic laws of economics?

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The reduction of financial risk has no value when there is no actual loss. At least not to the purchaser, and at least not in any quantifiable way.

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Let’s say a company determines that they could be responsible for 100mm in liability damages in a given year from their operations. Instead of having to set aside 100mm to cover themselves, they pay ~5mm in order to have it covered.

They can then use that extra 95mm to invest in themselves; growth, R&D, debt payoff, etc.

You couldn’t be further from wrong.