In order for insurance companies to generate predictable payouts, they need to:
A) spread the risk across many policies.
B) accept policyholders from a very specific geographic area.
C) focus on insuring only specific events, for example only fire.
D) offer only life insurance.

Question

Quizplus · Accepted Answer

Spreading the risk across many policies is one way for insurance companies to generate predictable payouts. By insuring a large number of policyholders across different regions and demographics, insurance companies can offset the risk of high claims from a small subset of policyholders. This allows them to more accurately predict the total amount of payouts they will need to make over a given period of time. Choices B, C, and D are not effective ways for insurance companies to generate predictable payouts as they limit the range of policies available and increase the risk of high claims from a specific subset of policyholders.

In Order for Insurance Companies to Generate Predictable Payouts, They