Which of the following allows insurance companies to predict the likelihood that a peril will occur?
A) underwriting
B) deductibles
C) law of risks
D) law of large numbers

Question

Quizplus · Accepted Answer

The law of large numbers enables insurance companies to use past data to statistically predict the likelihood that a peril will occur. This law states that as the number of observations increases, the average will converge towards the expected value. Therefore, insurance companies can use this law to predict the frequency and severity of claims and price their policies accordingly. Underwriting is the process of evaluating risks and setting premiums, deductibles are the amount policyholders pay before insurance kicks in, and there is no such thing as the "law of risks."

Which of the Following Allows Insurance Companies to Predict the Likelihood