Definition: The Insurance 80/20 Rule refers to a commonly accepted principle that holds that most financial decisions are made based on their outcomes or potential, rather than their cause. According to this rule, when it comes to insurance, most policies are only available for 80% of the claims and 20% of the losses. This means that the vast majority of customers pay premiums which is what they think they have been paying for. While there may be some exceptions where a claim is paid out under an insurance policy but not because it was caused by an insured's fault, this generally does not count as an outcome. The Insurance 80/20 Rule is often seen as a way to highlight the importance of careful and informed decision-making in business. It stresses that most decisions are made on the basis of potential outcomes rather than actual costs or losses. By understanding this principle, businesses can make more informed decisions about risk management and pricing. In summary, the Insurance 80/20 Rule is a common practice in the insurance industry to ensure that customers pay premiums which are based on their likelihood of being covered by an insurance policy instead of their actual cost of loss or liability.

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