Insurance theory

Insurance theory is the study of how risk is managed and shared among individuals or entities. It involves evaluating the likelihood and potential cost of unexpected events—like accidents, health issues, or property damage—and using this information to design policies that provide financial protection. By pooling resources from many policyholders, insurance spreads the financial impact of individual losses, making them more manageable. The goal is to balance premiums collected with claims paid out, ensuring the insurer remains solvent while providing reliable coverage. In essence, insurance theory combines probability, economics, and risk management to create fair and sustainable protection systems.