According to the law of large numbers,what should happen as an insurance company increases the number of loss exposures that it insures?
A)Fewer losses should be expected to occur.
B)The amount of premiums needed to cover losses should decrease.
C)The volatility of the insurance company's underwriting results should increase.
D)The difference between actual and expected results should decrease.

Question

Quizplus · Accepted Answer

The law of large numbers states that as the number of loss exposures increases, the difference between actual and expected results should decrease. This means that the insurance company's underwriting results should become more predictable and stable, as a larger sample size makes it easier to accurately calculate the probability of losses occurring. While it is possible that the amount of premiums needed to cover losses may decrease slightly with a larger sample size, this is not a guaranteed outcome and would depend on other factors such as the nature of the exposures being insured. The volatility of underwriting results should also decrease with a larger sample size, as the law of large numbers helps to smooth out the impact of random fluctuations.

According to the Law of Large Numbers,what Should Happen as an Insurance