We're willing to overpay for this protection Insurance companies rely on the Law of Large Numbers 1.
Insurance companies are unlikely to win any popularity contests.
Even the mere possibility of such losses weighs on our peace of mind. The risk of such losses might be slim, but we're willing to pay for protection against them. In fact, we're willing to overpay. But people might be willing to pay twice that amount to avoid the possibility of a financial catastrophe. In this sense, people are risk averse .