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Insurance is one of the most interesting and important transactions made by individuals and business firms. Justice Black in the 1943 South Eastern Underwriters Association decision wrote, "Perhaps no modern commercial enterprise directly affects so many persons in all walks of life as does the insurance business. Insurance touches the home, the family, and the occupation or business of almost every person in the United States."

Throughout human history, unexpected economic losses have occurred. Such losses would occur even if the insurance transaction had never been developed. Through the operation of an insurance system, however, combined losses can be predicted.The predictability of losses is basic to an insurance system's operations. Because insurance allows a group's (but not an individuals) losses to be predicted accurately, it allows the cost of losses to be financed and redistributed in advance.