Insurance companies can usually cover the claims of policyholders because:

Question

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Insurance companies use the law of large numbers to spread risk across a large group of policyholders. This means that the small percentage of policyholders who do have claims can be covered by the majority who do not. The more policyholders an insurance company has, the more predictable their loss ratio (claims paid out compared to premiums collected) will be, allowing them to accurately price their policies and maintain financial stability. Limited number of policies (B) and the U.S. government insuring insurance companies (C) are not common practices in the insurance industry. Stockholders (D) may contribute to the company's funds, but it is not their responsibility to cover any cash shortfalls.

Insurance Companies Can Usually Cover the Claims of Policyholders Because