Some people don't like this example but I do. Think of what a bookie does. They take bets in the hope that they know more than the people betting. Sometimes they will accept too many bets to one side. They recognize that there is a very high risk that if things go wrong it could cost them a lot of money.
Insurance companies have a similiar problem. Sometimes they will look at a risk and determine that they have bet on the wrong side and if the event happens the cost to them would be more than they are ready to accept so they reinsure with another company. By doing so they reduce their risk but they also cost themselves money as they must pay the reinsurance company a fee. Is it worth it? On very large risks, yes.
WalletHub Answers is a free service that helps consumers access financial information. Information on WalletHub Answers is provided “as is” and should not be considered financial, legal or investment advice. WalletHub is not a financial advisor, law firm, “lawyer referral service,” or a substitute for a financial advisor, attorney, or law firm. You may want to hire a professional before making any decision. WalletHub does not endorse any particular contributors and cannot guarantee the quality or reliability of any information posted. The helpfulness of a financial advisor's answer is not indicative of future advisor performance.
WalletHub members have a wealth of knowledge to share, and we encourage everyone to do so while respecting our content guidelines. This question was posted by a WalletHub user.
Please keep in mind that editorial and user-generated content on this page is not reviewed or otherwise endorsed by any financial institution. In addition, it is not a financial institution’s responsibility to ensure all posts and questions are answered.
Ad Disclosure: Certain offers that appear on this site originate from paying advertisers, and this will be noted on an offer’s details page using the designation "Sponsored", where applicable. Advertising may impact how and where products appear on this site (including, for example, the order in which they appear). At WalletHub we try to present a wide array of offers, but our offers do not represent all financial services companies or products.