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Zorluk: OrtaLaw of Large Numbers

An insurance carrier is evaluating a new portfolio of cyber liability policies for small businesses. The chief risk officer notes that the Law of Large Numbers must be properly applied to ensure long-term solvency and accurate premium pricing. Which of the following statements correctly describe the application of this principle to the new portfolio? (Select all that apply)

  1. As the number of insured businesses increases, the carrier's actual aggregate losses will more closely approach its expected losses.Cevap
  2. The businesses added to the portfolio must represent homogeneous exposure units for the loss predictions to be statistically reliable.Cevap
  3. C
    By maximizing the pool size to improve predictability, the carrier is utilizing the risk handling method of risk avoidance.
  4. D
    The expanding pool size allows the carrier to pool both the pure risks of cyber breaches and the speculative risks of the businesses to stabilize premiums.

Cevap

The correct statements are that actual aggregate losses will approach expected losses as the pool grows, and that the exposure units must be homogeneous.
The Law of Large Numbers fundamentally asserts that as the number of similar (homogeneous) exposure units increases, the predictability of future aggregate losses improves. This allows the insurer to set accurate premium rates.

Adım Adım Çözüm

1
Analyze the core definition of the Law of Large Numbers.
The principle states that a larger number of similar exposure units increases the accuracy of predicting aggregate losses.
Establishing the fundamental rule eliminates choices that misapply the concept to unrelated risk functions.
2
Evaluate the requirement for homogeneity in the risk pool.
Risks must be similar (homogeneous) for past statistics to predict future losses accurately.
If exposure units possess wildly different loss probabilities, aggregate prediction models become unreliable.
3
Identify incorrect applications of risk management concepts in the remaining options.
Eliminate the statements confusing risk transfer with risk avoidance, and pure risk with speculative risk.
The Law of Large Numbers strictly applies to transferred pure risks, not avoided risks or speculative risks.

Anahtar Kavram

The Law of Large Numbers requires a large number of homogeneous exposure units to accurately predict future aggregate losses for pure risks.
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Konular

Law of Large Numbers

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