An important part of insurance is that insurance companies don't just write one policy at a time. They actually write thousands of policies covering similar risks every day. So let's think about why they do this. Well, by writing lots of similar policies, it allows the insurance company to spread its risk across the whole portfolio. So this means that even if one customer makes a very large claim, this can be offset against all the other customers making much smaller claims. So effectively, this allows the insurance company to manage their risks. The insurance company can then use historic data and statistical techniques to predict the amount of claims across the whole portfolio, rather than just on any one given policy. These predictions are based on a number of assumptions and although the insurance company can't know with absolute certainty what the future claims will be, they can make a very good estimate. Also, the amount of premiums that are charged to the customer will reflect the amount of confidence that the insurance company has in their ability to predict the claims. A further important point to note is that even if an insurance policy covers a period of let's say, one year, then it is usual for the claims to continue to be paid out after the end of the coverage period. So why is this? Well, there's two reasons. Firstly, it can take some time for the insurance company to be notified of a claim. So let's take the example of an auto policy. Even if the accident happens, just before the end of the coverage period, it may take some time for the customer to call the insurance company and notify them that that event has happened. But secondly, even once the insurance company knows about the claim, it can take some time for that claim to be assessed and settled. If you take the example of that auto policy, it might take a few weeks for the insurance company to work out exactly how much will cost to repair the car and then for it to actually pay the claim out. The types of insurance where the claims take a very long time to be agreed and settled are referred to as long tail business. And an example of this would be liability insurance. Hopefully, it's clear from this that an insurance company's reliance on estimates and assumptions is a key part of what makes the industry really unique. And the people involved in estimating and calculating the amount and timing of future claims are referred to as actuaries.