An insurance company estimates its objective risk for 10,000 exposures to be 10 percent.Assuming the probability of loss remains the same,what would happen to the objective risk if the number of exposures were to increase to 1 million?
A)It would decrease to 1 percent.
B)It would decrease to 5 percent.
C)It would remain the same.
D)It would increase to 20 percent.

Question

Quizplus · Accepted Answer

Objective risk decreases as the number of exposures increases, due to the law of large numbers, which states that as the number of exposure units increases, the more closely the actual loss experience will approach the expected loss experience.

An Insurance Company Estimates Its Objective Risk for 10,000 Exposures