The primary reason the insurance mechanism functions successfully is the:
A) existence of hazard risks
B) ease with which losses can be measured
C) predictability of losses via the law of large numbers
D) existence of many non-industrial nations

Question

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The predictability of losses via the law of large numbers is the primary reason the insurance mechanism functions successfully. This law states that as the number of independent, randomly generated events (such as accidents or illnesses) increases, the average of the events will converge to the true probability of the event occurring. This allows insurers to accurately predict the likelihood and cost of losses and price policies accordingly. The existence of hazard risks (A) and ease of measuring losses (B) are important factors but not the primary reason for the success of insurance. The existence of many non-industrial nations (D) does not directly impact the operation of the insurance mechanism.

The Primary Reason the Insurance Mechanism Functions Successfully Is The