Why do insurance companies like to insure many people?
A) the law of actuaries
B) the law of risk taking
C) the risk-return trade-off
D) the law of large numbers
E) risk aversion theory

Question

Quizplus · Accepted Answer

The law of large numbers gives us an idea as to why insurance companies like to insure a large number of people. The larger the number of lives, houses, cars, boats, and so on that the companies insure, the more closely the claims from losses will be predictable based on a normal statistical distribution. This allows insurance companies to price policies for life insurance and casualty insurance appropriately so they have a predictable return on their assets.

Why Do Insurance Companies Like to Insure Many People