between the insurance company and the drivers, the insurance company would likely set the price of

insurance at $1,860 per year, to cover the average loss (not including the cost of overhead and profit). The

result is that those with low risks of only $100 will likely decide not to buy insurance; after all, it makes no

sense for them to pay $1,860 per year when they are likely only to experience losses of $100. Those with

medium risks of a $1,000 accident will not buy insurance either. Therefore, the insurance company ends up

only selling insurance for $1,860 to high-risk drivers who will average $15,000 in claims apiece, and as a

consequence, the insurance company ends up losing considerable money. If the insurance company tries to

raise its premiums to cover the losses of those with high risks, then those with low or medium risks will be

even more discouraged from buying insurance.
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