Insurance

Imagine you and nine mates each own a food truck. One of those trucks is going to break down catastrophically this year but none of you knows which one. The repair will cost fifty thousand dollars, enough to bankrupt any one of you. So you all agree to throw five thousand dollars into a pot at the start of the year. When one truck breaks down, the pot covers the repair. Each person traded a small certain cost for protection against a large uncertain disaster. Congratulations, you just invented insurance. The real business of insurance started in the coffee houses of seventeenth century London. Ship owners gathered at Edward Lloyd's coffee house to find wealthy individuals willing to underwrite their voyages. If the ship returned safely, the underwriter kept the premium. If it sank, the underwriter paid. Modern insurance runs on exactly the same principle at an almost unimaginable scale.