General Insurance PrinciplesPregunta 165 de 474
An insurer writing hundreds of thousands of similar homeowners policies can price them because the law of large numbers holds that:
a.writing more policies steadily lowers the chance that any one loss occurs
b.a large enough book of business removes the need for any reinsurance
c.as the number of similar exposures grows, actual losses come closer to predicted
d.each additional policy written reduces the severity of every future loss
Explicación
The law of large numbers says that the larger the group of similar exposure units, the more closely actual loss experience will match the expected experience, which is what makes rating possible. It does not change the odds facing any individual insured, so the choice saying more policies lower the chance of loss reverses the idea. Reinsurance is still bought to handle severity and catastrophe accumulation.
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