It should be clear that the existence of a private insurance industry in and of itself does not
decrease the frequency or severity of loss. Viewed another way, merely entering into an insurance
contract does not change the policyholder’s expectation of loss. Thus, given perfect information,
the amount that any policyholder should have to pay an insurer equals the expected claim
payments plus an amount to cover the insurer’s expenses for selling and servicing the policy,
including some profit. The expected amount of claim payments is called the net premium or
benefit premium . The term gross premium refers to the total of the net premium and the amount to
cover the insurer’s expenses and a margin for unanticipated claim payments.