Even if an insurance company holds a substantial reserve to pay claims, the algebra of probability shows that its funds are likely to be exhausted in payouts.

Question

Quizplus · Accepted Answer

Insurance companies use the law of large numbers in probability to spread risk among many policyholders, reducing the likelihood that all claims will deplete their reserves at once. They also invest reserves to ensure they can cover future claims.

Even If an Insurance Company Holds a Substantial Reserve to Pay