Why is a large number of exposure units generally required for a risk to be insurable?
A) It prevents the insurer from losing money.
B) It guarantees that losses will be unintentional and measurable.
C) It enables the insurer to better predict the frequency and severity of losses (moderate).
D) It minimizes physical hazards.

Question

Quizplus · Accepted Answer

A large number of exposure units enables the insurer to better predict the frequency and severity of losses, which is essential for pricing the insurance policy accurately and ensuring that the premiums collected are sufficient to cover the losses. This is known as the law of large numbers, where the larger the sample size, the more accurate the predictions will be.

Why Is a Large Number of Exposure Units Generally Required