Insurers try to set the price of co

Insurers try to set the price of coverage in accordance with the expected loss – the
probability of a loss (risk) multiplies by the magnitude of the loss if it occurs. Such
pricing is based on average insurance costs rather than marginal costs, but when
accurate (capable of discriminating between different risk characteristics) it is capable
of sending quite precise price signals to the insured (by passing some of the risk on)
and so offering partial internalisation