The home computers industry has been growing rapidly in the United States for the last ten years. Computers used to be large, expensive machines that were very difficult to use. But scientists and technicians have been making them smaller and cheaper while at the same time they have been made easier to use. As a result, their popularity has been increasing as more people have been buying computers for their homes and businesses. Computers have been designed to store information and computer complex problems. Some have voices that speak with the operators. Stores use computers to keep records of their inventories and to sell bills to their customers. Offices use computers to type letters, record business and communicate with other offices. People have been using computers in their homes to keep track of expenses and turn appliances on and off.
One important use for computers is for entertainment. Many new games have been designed to be played on the computers. People of all ages have been playing these games. They have been buying home computers to play computer games at home. They have become very popular indeed.
Like all private firms, insurance companies must charge enough for protection to pay their operating costs and make a profit. The main factor affecting the price of insurance, however, is the amount of risk involved. The more risk an insurance company assumes for a policyholder the higher the premium. Risk is measured in terms of probable losses.
An insurance company must collect enough money from all its policyholders to pay the claims of those who have losses. A claim is a request for payment of a loss. It is impossible to tell, of course, which policyholder will have losses. But it is possible to estimate with some accuracy how many will have losses. A company does this by studying its past losses.
For example, from its records, an insurance company can tell how many of its policyholder will probably die each year. It can tell how many policyholders will probably be hospitalized and unable to work. It can also predict how many homes will probably catch fire and what the average loss will probably be. Using this information a company can figure about how much it will have to pay in claims during a year.
It can then determine what a policyholder must pay for protection. As some people would say, insurance premiums are based on probability.