Why is a large number of exposure units generally 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 speculative risk.
D) It reduces both the speculative risk and pure risk.

Question

Quizplus · Accepted Answer

A large number of exposure units enables insurers to predict losses more accurately through the law of large numbers, which states that the larger the group, the more predictable the outcomes become. This predictability is crucial for setting premiums and ensuring the financial stability of the insurance operation.

Why Is a Large Number of Exposure Units Generally Required