In Order for the Law of Large Numbers to Work

question 51

Multiple Choice

In order for the law of large numbers to work, the pooled exposures must have approximately the same probability of loss.Insurers must therefore:

• A)classify exposures according to expected loss.
• B)restrain from insuring individuals with significant differences in the probability of loss.
• C)encourage underwriters to concentrate on loss frequency rather than severity.
• D)encourage actuaries to concentrate on frequency of losses.
• E)concentrate on tapping heterogeneous exposures.

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Definitions:

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The process of determining the maximum level of output that a company can sustain with its existing resources.

Order Fulfillment Department

A functional area within a business that manages the process of receiving, processing, and delivering orders to customers.

Tech Support Department

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A financial assessment to determine the cost associated with acquiring, serving, and retaining a customer, helping businesses understand the value of customer relationships.