Modern insurance is really just a formalized mechanism mirroring Mennonite risk sharing with an insurance company administering the process.  This process depends on a collective view of risk.  Hundreds of policyholders sign contracts that state that their collective cohort will make any policyholder, who has an unfortunate event, whole.  It is not a big stretch to propose that 39/40 policyholders will pay the economic cost for the one policyholder who has an unfortunate loss.  In that way, individuals can pay 1/40 of their expected loss (plus expenses) and know that they are now immune to economic risk.

It is this use of the collective that makes insurance work.  And it is a miraculous financial instrument.  But, modern reality is significantly different than the insurance nirvana outlined above. Today there is a strongly increased focus on individual equity that erodes the principles of collective risk sharing.  This has been aided and abetted by the acumen of actuaries. 

The paper will now discuss this philosophical transition one line of business at a time.

*Brown Paper Awarded Professionalism/Education Track Prize