In most consumer activities, the customer exchanges money for a product or quickly performed service. Auto insurance is different: The customer pays a fee to the insurance company, and the insurance company maybe provides a service or financial assistance at some point although if the service is never rendered, both the consumer and the company would probably be pleased. Auto insurance companies make money through a combination of managed risk and the strategic use of money. Insurers associate together large swaths of their policyholders into «groups» via the risk-assessment criteria discussed earlier — type of car, driving record, and so on. Out of each group, it’s likely that a very small percentage of these policyholders will endure a car accident severe enough to file a claim during the coverage period. That’s because managed risk spreads the short-term financial burden out over the rest of the group, the remaining members of which, in this scenario, have...