Hello and welcome to another issue of Net Interest, my newsletter on financial sector themes. If you’re new here, thanks for signing up. Every Friday I go deep on a topic of interest in the sector and highlight a few other trending themes below. If you have any feedback, reply to the email or add to the comments. And if you like what you’re reading, please do share and invite friends and colleagues to sign up.

The End of Insurance

Daniel Bernoulli wasn’t even the best mathematician in his own family. But his contribution to the study of risk is profound. 

In his essay of 1738, Exposition of a New Theory on the Measurement of Risk, Bernoulli applies his mind to the question of insurance. The basics of probability theory had already been unearthed, but Bernoulli was puzzled by how insurance fit into its framework.

His thinking goes like this: to be viable, an insurer would need to charge a premium at least equal to the expected value of any claims that may be made against it; to lock in a p…