That’s not what they said. That small premium is the cost of not paying directly for the large actual loss, you are paying for your predicted risk not the loss.

That’s not what they said. That small premium is the cost of not paying directly for the large actual loss, you are paying for your predicted risk not the loss. There isn’t likely a perfect loss prediction to be had, e.g. predicting and understanding risk itself influences the likelihood of avoiding a loss favorably. An ideal scenario might be that people become aware of risky behavior then adjust and therefore change the future prediction. Health insurers do it all the time. Helping at risk customers avoid large losses actually helps the customer and the rest of the less risky customers in the pool (everyone’s premium should go down if the risky become less risky).