Why is a large number of exposure units required for a risk to be insurable?
A)it allows the insurer to accurately predict the aggregate dollar amount of loss
B)it allows for at least some losses to occur
C)it reduces the moral hazard
D)it reduces both the moral and the morale hazard

Question

Quizplus · Accepted Answer

A large number of exposure units helps the insurer to accurately predict the aggregate dollar amount of loss. With a larger pool of insureds, the insurer can obtain a more accurate estimate of the probability of loss and the expected value of that loss, which is essential to setting premiums and maintaining solvency.

Why Is a Large Number of Exposure Units Required for a Risk