Figure20-5The Insurance Market Here we represent the hypothetical market for insuring a merchant ship, where each ship requires £1000 in coverage. The demand curve is made up of shipowners who wish to buy insurance, and the supply curve is made up of wealthy investors who wish to supply insurance. In this example, at a premium of £200, only the most risk-averse shipowners will purchase insurance; at a premium of £100, only risk-neutral investors are willing to supply insurance. The equilibrium is at a premium of £130 with 5000 policies bought and sold. In the absence of private information, the insurance market leads to an efficient allocation of risk.